Eleventh Circuit serves whopper of ruling on franchisor’s ‘no-poach’/’no-hire’ agreement with franchisees – Franchising

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In recent years, business-to-business “no-hire” and “no-poach” agreements have come under legal attack, including through enforcement actions by the Federal Trade Commission and criminal prosecution by the US Department of Justice. Even President Biden jumped into the fray on July 9, 2021, when he issued his “Executive Order on Promoting Competition in the American Economy.”

On August 31, 2022, the United States Court of Appeals for the Eleventh Circuit released a notable and concerning decision involving a “non-employment agreement” between franchisees and their franchisor. In Arrington v Burger King Worldwide, Inc., the Eleventh Circuit overturned a Florida District Court’s decision to dismiss a lawsuit brought by former employees of several Burger King franchises who challenged the non-employment agreement contained in Burger King’s franchise agreements. Burger King as an illegal restriction of trade under the Sherman Act. Although Burger King allegedly removed no-hire language from new franchise agreements as of September 2018, this language existed in the old franchise agreements governing the franchised restaurants where the plaintiffs were employed.

District court dismisses workers’ lawsuit over no-hire agreement

In their lawsuit against Burger King, the plaintiffs argued that the agreements, in which Burger King franchisees agreed not to hire employees of Burger King or any of its franchisees for six months after hiring, constituted an illegal restriction of trade because they prevented employees from working at other Burger King restaurants and, therefore, resulted in lower wages, reduced benefits and reduced job mobility ascendancy of employees. The district court dismissed the suit, finding that Burger King’s franchisor and each of its franchisees were a ‘single economic enterprise’ and as such were incapable of engaging in ‘concerted activity’ of conspiracy – an essential element of liability under the Sherman Act. . Because the plaintiffs could not establish this element, the district court also dismissed as futile their request to amend their complaint. The plaintiffs appealed the decision.

The Eleventh Circuit focuses on the “independent” nature of the franchise relationship

The Eleventh Circuit disagreed with the District Court and found that the workers’ complaint against Burger King “plausibly alleges” that the non-employment agreement qualifies as a “concerted activity” under of the Sherman Act, in particular because “each franchisee [was] an independent center for decision-making on hiring or employment contracts.” As a result, the Eleventh Circuit reversed the District Court’s dismissal of the workers’ complaint and remanded the case to the District Court for continuation of the procedure.

In reaching this decision, the Eleventh Circuit analyzed several aspects of the franchise relationship between Burger King and its franchisees and focused on franchisee independence. For example, the standard franchise agreement expressly emphasized the “arm’s length” nature of each franchisee’s relationship with Burger King and that “no fiduciary relationship exists[ed] between the franchisee and Burger King. Consistent with this independence, each franchisee has also agreed to be “solely responsible for all aspects of the employment relationship with its employees,” including hiring, compensation, and other terms and conditions of employment. Burger King has reinforced that independence by stating on its hiring webpage that all employment decisions for positions at independent franchised restaurants “are determined solely by the franchisee.” Burger King explicitly anticipated competition from other company-owned and franchised Burger King restaurants. Circuit also noted that the plaintiffs “alleged (or would have alleged in their Amended Complaint Proposal) that the three franchisees [for which they worked] had different recruiting approaches on their websites. »

According to the circuit court, absent the non-hiring agreement, “each independent Burger King restaurant would pursue its own economic interests and therefore potentially and fully make its own hiring decisions, including with respect to salaries, hours and positions”. Since the non-hiring agreement removed this ability, it “”deprives[d] the marketplace for independent decision-making centers [about hiring]and therefore actual or potential competition. “”For this reason, the court held that the plaintiffs had sufficiently alleged a violation of the Sherman Act, but the court declined to decide whether the non-employment agreement was an unlawful restriction of trade.

Key points to remember

Although the Eleventh Circuit did not address the ultimate question of whether the non-hiring agreement in the context of franchising is an unlawful restraint of trade, the decision continues the recent trend of “non-poaching” agreements or of “non-hiring” coming under increased scrutiny. .

This decision highlights a challenge that some franchisors – and even some gig-economy companies and other companies with independent contractor agreements – may face with disputes involving certain employment practices at the the independent operator. While the independence of the franchise or business relationship is a key factor in limiting joint employer liability, that same independence could be leveraged by the workers of a franchisee or independent contractor. alleging antitrust violations against entities that do not employ them.

Given this situation, and the growing scrutiny and potential exposure in this area, companies may want to take the time to analyze whether they have entered into “no-poaching” or “no-poaching” agreements. hiring” that warrant further analysis. The scope and effect of the agreement, the parties involved and the nature of the relationship between the parties may merit careful consideration.

Companies should do a thorough analysis before entering into agreements with their competitors that restrict job mobility. Caution may be particularly warranted for franchisors, as well as gig economy companies and other independent contractors, given the importance of the independent nature of these relationships and the divisive legal landscape.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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