Plaintiffs’ bar takes aim at franchise “no-poach” agreements through class actions



August 09, 2018

Antitrust & Franchise Law Alert

Author(s): Steven B. Feirman, Ronaldo Rauseo-Ricupero, Alycia A. Ziarno

This alert discusses the latest attack on franchisors that use no-poach agreements and serves as a reminder that franchisors should consider performing an antitrust-focused review of their franchise agreements and policies.

Last Friday, as expected, the plaintiffs’ bar made clear that it was going to piggyback on the various state attorneys general investigations into “no-poach” agreements in the franchising industry. We recently discussed how eleven state attorneys general, led by Massachusetts Attorney General Maura Healey, launched an investigation into some of the country’s largest fast food franchisors based on the use of no-poach provisions in franchise agreements. We also discussed a subsequent letter sent to ninety national franchisors by Massachusetts Senator Elizabeth Warren and New Jersey Senator Cory Booker, requesting the removal of no-poach provisions from franchise agreements. Now, in what may be the first class action complaint to explicitly rely upon facts alleged in the multi-franchisor settlement with Washington State Attorney General Ferguson last month, former employees have brought action against Auntie Anne’s and its Washington franchisees on antitrust and consumer protection grounds, seeking damages in excess of $5,000,000.

The Complaint

The complaint in Stigar v. Dough Dough Inc. et al., E.D. Wash. No. 18-cv-244 (Aug. 3, 2018)—filed as a class action on behalf of employees of franchisees of the Auntie Anne’s brand—alleges that Auntie Anne’s and many of its Washington-based franchisees have violated state and federal antitrust laws by including no-poach provisions in franchise agreements. Specifically, the plaintiff alleges that the employees have been harmed by an agreement to “not employ or seek to employ an employee of [Auntie Anne’s] or another franchisee, or attempt to induce such an employee to cease his/her employment without the prior written consent of such employee’s employer.” According to the plaintiff, the agreement constitutes a per se violation of the law because it “artificially suppresses fast food worker wages.”

In addition to this action based on the Washington State investigation, other private actions are also moving through the courts. For example, in Illinois, a federal judge recently allowed a class action against Jimmy John’s sandwich shop to move forward. The court denied the franchisor’s motion to dismiss the antitrust claims because that plaintiff had sufficiently pleaded a claim for anticompetitive behavior and reserved a decision about whether the action would be allowed to advance a vertical or horizontal competition theory. Butler v. Jimmy John's Franchise, LLC, No. 18-cv-0133, 2018 WL 3631577, at *6 (S.D. Ill. July 31, 2018). The complaint in that case specifically relied on facts developed against Jimmy John’s by the Illinois state Attorney General. Id. at *5.

Auntie Anne’s and Jimmy John’s are by no means alone, as other franchisors have been accused in similar complaints filed for class action damages based on allegedly anticompetitive practices in the no-poach area. See Complaint, Bautista, v. Carl Karcher Enterprises, LLC, No. BC649777, 2017 WL 525938 (Cal. Super. Feb 8, 2017); see also Class Action Complaint, Ion v. Pizza Hut, LLC, No. 4:17-cv-00788, 2017 WL 5078431 (E.D. Tex. Nov. 3, 2017). In these other cases, plaintiffs have argued that the franchisees were horizontal competitors for antitrust purposes.

All of these cases and rulings give other plaintiffs’ lawyers a simple, convenient roadmap for pursuing additional class actions against other franchisors alleging harm flowing from agreements not to compete in the employment arena. In light of these developments, franchisors would be well advised to undertake an antitrust-focused review of their franchise agreements and policies.

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