As a result of a targeted investigation, several franchisors in the United States have spent this year rethinking their so-called “no poaching” agreements which have traditionally been included in their franchise contracts. Dunkin Donuts is the latest target in the crackdown on these agreements.
What is a “No Poaching” Agreement?
A no poaching agreement is a contract between two companies that says they will refrain from hiring the others’ employees. For example, a Wendy’s might agree not to hire employees from the Wendy’s down the street, and vice versa. Typically, franchisors include a no poaching clause in their franchise agreements which prevent franchisees from poaching each other’s employees. When these types of provisions are in place, the employee is often not aware the agreement exists between the owners.
The Latest Crack Down on No-Poaching Clauses
Earlier this year, New York Attorney General Barbara D. Underwood, and several other Attorneys General across the country announced a targeted investigation into multiple fast food franchisors’ “no poach” agreements included in the agreements they sign with franchisees.
The Attorneys General argued these types of agreements violate anti-trust laws because they restrict competition (for employees) and therefore suppress wages. As a result of this renewed focus, several franchisors, including Pizza Hut, Burger King, and Papa John’s, agreed to discontinue use of these types of provisions. As part of the deal with the Attorneys General, none of the impacted employees received monetary relief.
Class Action Suits
In response, Ackermann & Tilajef, P.C., a law firm based out of California, began filing class action lawsuits against franchisors and franchisees across the country for damages. The law firm has already filed suit against Carl Jr.’s and Auntie Anne’s locations. Recently, the law firm filed a class action lawsuit in New York federal court against Dunkin’ Donuts and several of its franchisees arguing these types of agreements “robbed class members [of] millions of dollars-worth of wages.” The argument goes that low wage workers are not solicited from competitors and thus do not talk about/seek the potential for higher wages. Ultimately, this may even lead to wage fixing since all owners can pay the same rate without fear their employees will be lured away to a comparable business down the street. Dunkin Donuts maintains its franchise agreements do not have no poach provisions.
Key Takeaways for Employers
Regardless of how this case turns out, this lawsuit is a good reminder for employers for a number of reasons. First, just because a matter is resolved with the government, does not mean a private lawsuit may not follow. Second, if your company uses these types of agreements or is even considering them you should think again. These no poach agreements have been heavily scrutinized for months and the scrutiny shows no signs of slowing as a result of the added litigation from the plaintiff’s bar. Therefore, you should contact competent labor and employment counsel if you do have these agreements in place or are considering them. Since this is an anti-trust issue, there can be significant fines and penalties for violations.
Brody and Associates regularly advises management on complying with state and federal employment laws including wage and hour laws. If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560.
