Restaurant franchisors with no-poach agreements face government enforcement and class action lawsuits

Eight national restaurant chains recently agreed – after being alerted by attorneys general of 10 states and the District of Columbia – to drop provisions in their franchise agreements that prohibit franchisees from recruiting fellow franchisees’ employees. The agreements obligate the chains to drop the so-called “no-poach” hiring stipulation from their franchising agreements. In addition to criminal and civil enforcement by both the state and federal government enforcement, several restaurant chains also are facing federal class action lawsuits from employees alleging that they were adversely affected by “no-poach” agreements.

Why is “no-poach” government enforcement and private class action litigation heating up now? The trend began in 2016, when the U.S. Department of Justice announced its Guidance to Human Resource Professionals and informed employers that “going forward, the DOJ intends to proceed criminally against naked wage-fixing or no-poaching agreements.” (Emphasis added). More broadly, DOJ warned that antitrust concerns may arise if an employer:

• Agrees with another company about employee salary or other terms of compensation, either at a specific level or within a range.
• Agrees with another company to refuse to solicit or hire that other company’s employees.
• Agrees with another company about employee benefits.
• Agrees with another company on other terms of employment.
• Expresses to competitors that you should not compete too aggressively for employees.
• Exchanges company-specific information about employee compensation or terms of employment with another company.
• Participates in a meeting, such as a trade association meeting, where the above topics are discussed.
• Discusses the above topics with colleagues at other companies, including during social events or in other non-professional settings.
• Receives documents that contain another company’s internal data about employee compensation.

DOJ recently reported in its Antitrust Division’s Spring 2018 Update that it is actively pursuing “no poach” and wage fixing agreements between employers. The DOJ Antitrust Division also warned: “Market participants are on notice: the Division intends to zealously enforce the antitrust laws in labor markets and aggressively pursue information on additional violations to identify and end anticompetitive no-poach agreements that harm employees and the economy.”

Franchisors who have reached no-poach agreements – either formally or informally – should consult with experienced antitrust counsel at their earliest opportunity to discuss how to mitigate risk and devise pragmatic and proactive solutions that serve to both protect their business and comply with applicable antitrust laws.