No-Poach Agreements for Fast Food Employees are Under Scrutiny

Many fast food franchise operators have “no-poach” clauses in their franchise agreements, which prevent low-wage fast food workers from moving to higher-paid jobs at other franchises. While a non-compete agreement appears in an employee’s contract and prevents them from working for a competitor after they leave, a no-poach agreement is never agreed to by the employee, but still prevents them from working for a competing franchise.

Many types of businesses impose no-poach clauses, but they are the most prevalent in the restaurant industry. The clauses do not prevent employees from moving between fast food chains, but do prevent them from moving between franchises in the same fast food chain. For example, a no-poach clause would not prevent a Burger King employee from being hired by a Wendy’s, but would prevent the Burger King employee from being hired by a different Burger King Franchise.

Supporters of the clauses argue that they protect the franchise’s investment in training employees, in a high-turnover industry. But no-poach clauses are coming under increased scrutiny.

In June 2017, employees brought a class action lawsuit against McDonald’s for state and federal antitrust violations arising from its no-poach agreement, which had been included in its franchise contracts since 1987. The complaint states, “The collusion of employers to refrain from hiring each other’s employees restricts employee mobility. This raises employers’ power in the market at the expense of employees and diminishes employee bargaining power.” On June 25, 2018, Judge Jorge L. Alonso denied McDonalds’ motion to dismiss the federal antitrust count, but granted its request to dismiss the two state antitrust counts. The litigation is ongoing, and we will monitor the case as it proceeds. McDonalds removed the no-poach clause from its franchise agreements in 2017.

A letter released publicly on July 9, 2018, by 10 attorneys general, including those of New York and New Jersey, asks eight fast food restaurant chains—Burger King, Dunkin’ Donuts, Five Guys Burgers and Fries, Little Caesars, Wendy’s, Arby’s, Popeyes Louisiana Chicken, and Panera Bread—to provide information about their no-poach agreements, including how many employees are subject to no-poach agreements and whether the employees are aware of the agreements.

In the letter, the attorneys general expressed concern about the clauses, stating, “By limiting potential job opportunities, these agreements may restrict employees’ ability to improve their earning potential and the economic security of their families.” The attorneys general also cited concern that the agreements “deprive other franchisees of the opportunity to benefit from the skills of workers covered by a No Poach agreement whom they would otherwise wish to hire.”

On July 12, 2018, the Washington State Attorney General announced that seven large fast food restaurant chains entered into an agreement with Washington State to end their practice of including no-poach clauses in their franchise agreements, and to stop enforcing existing no-poach clauses nationwide. The chains that are dropping the no-poach clauses are Arby’s, Carl’s Junior, McDonald’s, Jimmy John’s, Auntie Anne’s, Buffalo Wild Wings, and Cinnabon. “My goal is to eliminate these provisions in all fast-food contracts in my state,” said Washington State Attorney General Bob Ferguson.

Workers in other industries are also affected by no-poach agreements. In a notable example, in 2011, employees brought a class action lawsuit against Silicon Valley giants Apple, Google, Intel Corp, and Adobe Systems for entering into agreements not to poach each other’s engineers, thereby limiting job mobility and keeping salaries down. During the case, emails among the top executives were produced, in which Apple CEO Steve Jobs asked Google CEO Eric Schmidt to stop poaching employees from Apple, and an email from Intel CEO Paul Otellini referring to an agreement between himself and Schmidt not to poach each other’s employees. The case settled in 2015 for $415 million.