Anti-Poaching Probe Ushers in Long, Hot Summer
Burger King is one of eight franchises asked for information about anti-poaching clauses by 11 attorneys general.
So much for summer vacation for the eight franchises targeted by 11 attorneys general in an investigation announced Monday into anti-poaching clauses they may have in their franchise agreements. That’s the wry comment made by Carl Zwisler of Gray Plant Mooty in Washington, D.C., when reached Wednesday.
He and partner Mark Kirsch say they are representing a number of franchise brands targeted in the probe, who will need to provide detailed answers to the attorneys general in 10 states and the District of Columbia.
“It’s imposing a considerable cost on the companies that have to respond,” Zwisler said. They’ll have to answer questions like what anti-poaching clauses were in their agreements since 2015? Did they change those agreements? How so?
They’ll have to “send copies of what’s in their agreements and provide records” of any results in each state in the probe. “And they’re supposed to have this delivered by August 6,” according to the AG’s letter, he said.
There’s potentially more to come, with Sen. Cory Booker (D-N.J.) telling an International Franchise Association exec this week he plans to target as many as 90 franchises in his office’s own probe, Zwisler said.
Burger King, Dunkin’Donuts, Panera Bread, Wendy’s, Arby’s, Five Guys, Little Caesars and Popeyes are the brands targeted by the attorneys general in the probe, which seeks to investigate clauses that bar or restrict workers in one franchisee’s operation from hiring employees from another franchisee within the same brand.
“No-poach agreements unfairly limit the freedom of fast-food and other low-wage workers to seek promotions and earn a better living,” said Massachusetts Attorney General Maura Healey (D), who is leading the probe. Some say the practice keeps wages low and is an explanation for anemic wage growth in an otherwise strong economy.
Booker and Sen. Elizabeth Warren, (D-Mass.,) said in March they would introduce legislation to make no-poaching agreements illegal and called them “anti-competitive.” The U.S. Justice Department’s antitrust division has also opened an inquiry into the practice.
In addition, Kirsch and Zwisler noted there are four class action cases involving franchisors and their anti-poaching agreements making their way through the courts right now. Those involve McDonald’s, CKE, Pizza Hut and Jimmy John’s.
Zwisler advised franchises to “look carefully at the language that you have. If you have anti-poaching language in your agreements, decide how important it is to you and whether you’re willing to litigate it” and/or be subject to an antitrust claim.
The rationale behind the anti-poaching clauses is this, says Kirsch: “If a franchisee expends time and money training people, and learning the system, they don’t want another brand new franchisee in the system to come in and steal them. I will tell you, in my 30-plus years in franchising, I can think of twice when a client has called me about this situation. They’re not used a lot, they’re not relied on a lot. It’s just not that relevant,” he said.
Amy Cheng of Cheng Cohen in Chicago said she’s advising clients not to react too quickly. “People are freaking out and wanting to modify their contracts,” she said, but she thinks that’s the wrong move.
“The point of the provisions is to protect the franchisee, for the franchisee to know that I can spend my resources to train these people” and they won’t be poached by another in the same system. “The other franchisees are all third-party beneficiaries of this provision,” she says, so if franchisors began unilaterally announcing they would not enforce it, “if I’m a franchisee, I would not be happy.”
She says if and when state or federal legislation is passed prohibiting the clauses, “we have to advise them that way. But until then I wouldn’t tell my client to do things differently,” she says.
David Kaufmann of Kaufmann Gildin & Robbins in New York is likewise advising against taking action. “Not yet and not soon,” he says. “This is much like the joint employer scenario where everybody was predicting the sky is falling. Here too, this is another foray of those of a certain political persuasion. This is more about political grandstanding than anything else,” he believes.
“Here’s the irony, for almost 50 years, the sole focus of protection of our nation’s federal and state franchise laws have been franchisees. These no-poaching provisions are for the protection of franchisees,” he said. “What the government is doing is essentially allowing a franchisee to be robbed of an employee” in whom the franchisee has invested. “Who’s being protected here?”