Are No-Poach Deals Hidden in Fast Food’s Secret Sauce?
On Monday, attorneys general from 10 states sent a letter to eight fast-food companies to find out if company franchises use “no-poach” clauses in their contracts. In the letter, the AGs request information and documents that may contain “no-poach agreements,” which refers to any language that “restricts or prevents franchisees from hiring or soliciting employees of and/or other franchisees for employment.” Included in this are no-solicitation, non-compete and/or no-hire agreements.
“I find this case a little peculiar,” says Jason Finkelstein, an attorney at Cole Schotz P.C. “I wasn’t aware of [the potential wide-spread] use of no-poach agreements among franchisees from the same corporation.”
Indeed, Finkelstein says, plenty of corporations and franchises implement no-compete clauses, but to use no-poaching for franchises from the same company seems like overkill.
One of the biggest causes for concern with these agreements is that employees may not be aware of them—no-poach clauses are often buried in paperwork that franchise owners are given from the fast-food company. But these hidden rules disproportionately impact low-wage earners who may want to move from, say, one Burger King to another for a better shift, more hours or higher pay.
Last year, McDonalds announced that it would remove any no-poach language from its franchise documents. The announcement occurred around the same time the company was being sued, along with CKE Restaurant Holdings, for allegedly violating antitrust and labor laws by using no-poach clauses.
Cynthia Mark, chief of the Fair Labor Division of the Massachusetts attorney general’s office told the New York Times that she spoke with a McDonalds worker who wasn’t allowed to accept a higher-paying position at a different McDonald’s franchise because of a “no-poach provision.”
Finkelstein says that if these no-poach clauses do exist within the fast-food franchise agreements, it’s possible that the clause shouldn’t impact employees who willingly seek employment at another franchise location. Instead, the clause specifically prevents franchisors from actively seeking out employees from other locations.
He says no-poach and non-compete agreements exist to guard the “protectable interests” of employers, which, in the case of fast-food companies, shouldn’t extend to low-wage earners who are likely far removed from what the company wants to protect.
Until the eight restaurant chains acquiesce and provide the proper documentation to the attorneys general, all anyone can do is speculate, notes Finkelstein.
“Franchisors, especially those from the same corporation, are selling the same product, possibly in the same geographic location and at the same price,” he says. “What is there to protect when everything is identical?”
Finkelstein adds that if these no-poach agreements do surface, next steps may be to determine enforceability, not legality, of the clauses.
Seven major fast-food chains, some of which were part of the investigation above, have agreed to remove all no-poach language from contracts with franchises.