Private Litigations and State Enforcement
The agencies’ guidance that no-poach agreements were not only unlawful but criminal helped to launch a flurry of private litigation and state-level investigations into potential violations. In July 2018, Washington State Attorney General Bob Ferguson announced that seven fast food chains, including McDonald’s and Arby’s, had agreed, under threat of enforcement action, to end a nationwide practice of prohibiting franchisees from hiring or recruiting employees from other franchisees. Standard terms in these brands’ franchise agreements prevented, for example, the owner of one Arby’s franchise from recruiting or hiring employees of another Arby’s franchise. By October 2018, Ferguson’s office had reached similar settlements with 100 corporate chains, extending beyond restaurants to businesses offering entertainment, massage, painting, and other services via the franchise model.
Limits to the Per Se Rule
At the same time that DOJ has aggressively pursued no-poach cases, it has also argued for a more lenient and flexible approach in certain contexts. Through statements of interest filed in private litigations, the agency has advocated against application of the per se rule to restrictions on labor competition within franchises.
In March 2019, DOJ filed a statement of interest favoring defendant fast food chains in several follow-on class actions. This filing outlines some of the most colorable defenses for no-poach cases in the franchise context. Citing the law’s more lenient approach to restrictions on competition within a single brand (i.e., “intra-brand” competition) and to vertical restraints imposed by franchisors, DOJ argued that the employees’ claims should be assessed under the rule of reason. It further argued against treating the no-hire franchise provisions as a “hub-and-spoke” conspiracy, which would also be per se unlawful. Such cases, it observed, require agreements not only between the hub (franchisor) and spokes (franchisees), but also among the spokes themselves, forming the “rim” of the figurative wheel. Throughout its statement, DOJ emphasized the ancillary restraints doctrine, under which an agreement is exempt from the per se rule if it is “ancillary to a separate, legitimate venture between the competitors” and “reasonably necessary” to “make the main transaction more effective in accomplishing its purpose.”
No court has yet adopted DOJ’s position with respect to franchise labor restrictions, and it is unlikely that the Biden administration will continue the previous administration’s advocacy against plaintiffs on this or other fronts. Nevertheless, DOJ’s statements of interest and amicus briefs under the Trump administration may be cited for years to come, and provide a good starting place for defendants responding to no-poach suits in the franchise context.
As antitrust enforcers and the plaintiffs’ bar continue the dogged pursuit of agreements in restraint of competition for labor and talent, more and more companies may be brought into the fold. No industry is immune from scrutiny in this area, and the cases to date make clear that there is no market power or size threshold for investigations and prosecutions.
Companies can limit their future exposure by updating their compliance programs to be sure that executives and HR professionals understand that the antitrust laws apply not just to sales and marketing activities, but also to employment activities. If there is reason to believe that the company or any of its subsidiaries may have entered into agreements limiting labor competition, these concerns should be investigated. For any violations uncovered, there may be steps that can be taken to mitigate criminal liability, such as use of DOJ’s leniency program for self-reporting violators, and to improve positioning for any incoming lawsuits.