Class action lawsuit against Burger King related to no-hire agreement is revived

Class action lawsuit against Burger King related to no-hire agreement is revived

On August 31, 2022, the U.S. Court of Appeals for the Eleventh Circuit revived a class action lawsuit filed against Burger King in which certain former employees allege violations of antitrust laws related to no-poach provisions formerly contained in Burger King’s franchise agreement.

Burger King No-Hire Agreement

Founded in 1954, Burger King has over 7,000 restaurants throughout the United States. Approximately 99% of Burger King restaurants worldwide are independently owned franchises. From at least 2010 until September 13, 2018, Burger King incorporated into its standard franchise agreement, a “No-Hire Agreement.” The No-Hire Agreement binds Burger King and the applicable franchisee to not attempt to hire away any current employee of Burger King or of another Burger King franchisee, and hire any employee of Burger King or of another Burger King franchisee for six months after the employee leaves the first Burger King restaurant, unless the first Burger King employer gives the later Burger King franchisee its prior written consent.

If Burger King or the franchisee violates the No-Hire Agreement, it was required to pay all costs and attorneys’ fees incurred in any legal action brought to enforce the agreement. In addition, the Burger King franchise agreement gives Burger King the right to terminate a franchisee’s right to operate its Burger King franchise if the franchisee commits an event of default, which includes a breach of the No-Hire Agreement. Beginning in September 2018, Burger King removed the No-Hire Agreement language from its franchise agreement.

Arrington v. Burger King Worldwide, Inc.

Jarvis Arrington was a line cook for a Burger King franchisee in Illinois until August 2017. Arrington wanted to transfer to another Burger King in Chicago; however, after submitting an application, he was told his transfer would need to be approved based on the No-Hire Agreement. In October 2018, Arrington and certain other Plaintiffs filed a class action lawsuit against Burger King alleging that “no-poaching” agreements are illegal under antitrust laws and that it is unlawful for competitors to agree not to compete with one another. The complaint further alleges that no-poaching agreements create restrictions on employee mobility and competition in the labor market, while simultaneously limiting the workers’ right to seek “increased wages and improved working conditions.” Burger King responded to the lawsuit by filing a motion to dismiss the complaint.  

On March 24, 2020, Judge Martinez of the U.S. District Court for the Southern District of Florida dismissed the class action claims against the Burger King defendants. The defendants insisted that, under a “quick look analysis,” no one with a rudimentary understanding of economics could find that the no-hire provisions had anticompetitive effects on employees or labor. The defendants also argued that Burger King and its franchisees were a single enterprise incapable of conspiring under Section 1 of the Sherman Act antitrust laws. Under the single-entity rule, legal entities that have a common unity of interest are found to be incapable of conspiring in violation of the antitrust laws.

The District Court ultimately concluded that Burger King was not capable of concerted action with its franchisees because “Burger King’s relationship with its franchisees more closely resembles a corporation organized into divisions or de facto branches, or that of a parent-subsidiary.” Judge Martinez relied on all of the requirements that Burger King imposed on its franchisees, including brand standards, to support her conclusion that there was a common interest between Burger King, the franchisor, and its franchisees. For example, Burger King imposed on its franchisees payment of royalties, payment toward a joint advertising budget, use of a uniform operations manual, uniform appearance and image, uniform menu, uniform service and manner of food preparation, standardized equipment, uniform training standards, and uniform hours of operation.

Moreover, the District Court found that the “Amended Complaint and standard franchise agreement reveal, Burger King’s products, and all of the operational parameters necessary to bring them to the marketplace, are fully realized long before a franchisee joins the Burger King System and subject to close supervision by [Burger King Corporation].”

Plaintiffs appealed the District Court’s ruling.

Eleventh Circuit’s Ruling

Section 1 of the Sherman Act prohibits any contract, combination in the form of trust or otherwise, or conspiracy that restrains trade or commerce. The Plaintiffs have the burden of proof to show that Burger King and its franchisees undertook concerted activity through the No-Hire Agreement to unlawfully constrain trade and competition. The Eleventh Circuit ruled that Burger King and its franchisees compete against each other and have separate and different economic interests. Each franchisee is an independent center of decision making as to hiring and employment relationships. Thus, in the absence of the No-Hire Agreement, each independent franchisee would pursue its own economic interests and make its own hiring decisions, including about wages, hours, and positions. For these reasons, the Eleventh Circuit ruled that the Plaintiffs plausibly allege that the No-Hire Agreement qualifies under Section 1 of the Sherman Act as “concerted activity” and that it may unlawfully restrain trade.   

The case was remanded back to the U.S. District Court for the Southern District of Florida for further proceedings.

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