Seventh Circuit revives class action lawsuit against McDonald’s relating to no-hire, anti-poaching agreement
A lawsuit filed by two former McDonald’s employees alleging that the company’s hiring practices violate antitrust laws has been sent back to an Illinois federal court for further consideration. The ruling resurrected a lawsuit that sought class-action status by the two workers.
The case involves inter-franchise, anti-poaching clauses in certain McDonald’s franchise agreements. Leinani Deslandes, a McDonald’s manager in Florida, brought the case to light in 2017, after declining a higher-paid job offered at another McDonald’s franchise due to McDonald’s anti-poaching policies.
On June 28, 2022, Judge Jorge Alonso of the U.S. District Court for the Northern District of Illinois, granted summary judgment to McDonald’s, ruling that the presence of other fast food restaurants in Leinani Deslandes’ and co-plaintiff Stephanie Turner’s home markets meant that McDonald’s didn’t have the market power to support their alleged antitrust claims. McDonald’s position is that the no-hire provision was ancillary to the franchise agreement to protect training investments and encourage cooperation.
However, the U.S. 7th Circuit Court of Appeals overruled this decision, holding that Judge Alonso erred in finding that the anti-poach clauses were ancillary to the franchise agreement and therefore permissible under the Sherman Act. Judge Frank Easterbrook states in his opinion:
“One problem with this approach is that it treats benefits to consumers (increased output) as justifying detriments to workers . . . That’s not right; it is equivalent to saying that antitrust law is unconcerned with competition in the markets for inputs,” adding, “Is there some reason to think that a no-poach clause promotes the production of restaurant food? Maybe it just takes advantage of workers’ sunk costs and helps each business’s bottom line, without adding to output.”
The case was remanded back to the U.S. District Court for the Northern District of Illinois to consider questions such as whether the no-poach clause being taken into account was protecting the franchises’ investments in training, or if it was being used to take advantage of the value of the workers’ own investments. Judge Easterbrook comments on this point as well, saying:
“Why did the clause have a national scope, preventing a restaurant in North Dakota from hiring a worker in North Carolina, when the market for restaurant jobs is local? These and other questions require careful economic analysis that had not been undertaken by the summary judgment stage.”
