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Franchises Continue to Face Litigation Over Employee ‘No-Poaching' Agreements

    Client Alerts
  • December 20, 2018

Several years ago, state attorneys general began investigating claims of antitrust violations based on franchise agreements that required franchisees not to hire employees of another franchisee. Despite the regular use of such clauses, these “no-poaching” agreements were alleged as a restraint on trade because they depressed wages for employees who were looking to move from one franchisee to another. More recently, these claims have become the basis for private class action claims against franchises that continue to include these restrictions in their franchise agreements.

In recent months, the Papa John’s and Jiffy Lube franchises were sued by plaintiffs alleging Sherman and Clayton Act antitrust violations. The suits contend that the franchises imposed the requirements in order to depress wage costs. The Papa’s John’s complaint followed a state attorney general investigation of those practices.

Both franchisors and franchisees should carefully balance the benefits of continuing to use no-poaching agreements against the risks of government investigations and private lawsuits. Employers may conclude that they are better served by alternate employee retention strategies that do not involve potential claims of anticompetitive business practices.