The Attorneys General of ten states are investigating fast food franchisors for their alleged use of “no poach” provisions in their franchise agreements, according to a press release by the New Jersey Attorney General’s Office, and as reported by NPR. In a July 9, 2018 letter, the Attorneys General for New Jersey, Massachusetts, California, Washington, D.C., Illinois, Maryland, Minnesota, New York, Oregon, Pennsylvania, and Rhode Island requested information from eight fast food companies about their alleged use of such provisions. The letter states that the Attorneys General “have learned that certain franchise agreements used in our States and the District of Columbia . . . may contain provisions that impact some employees’ ability to obtain higher paying or more attractive positions with a different franchisee.” In other words, the agreements purportedly prohibit one franchisee of a particular brand from hiring employees of another franchisee of the same brand.

As we previously reported, in October 2016, the U.S. Department of Justice Antitrust Division announced that it would proceed criminally against so-called “naked no poach” agreements between and among competitors (i.e., those that are not reasonably necessary to any separate, legitimate business collaboration between the employers) as per se violations of the antitrust laws. Earlier this year, in an update entitled “No More No-Poach: The Antitrust Division Continues to Investigate and Prosecute ‘No Poach’ and Wage Fixing Agreements,” the Antitrust Division announced an April 3, 2018 complaint and simultaneous settlement with Knorr-Bremse AG and Westinghouse Air Brake Technologies, its first prosecution under this new crackdown.

According to the update, the settlement includes: (a) a broad injunction prohibiting each defendant from entering into or maintaining no poach agreements among themselves and with other employers that will be in force for seven years; (b) an affirmative obligation to cooperate in any Antitrust Division investigation of other potential no poach agreements between the defendant and any other employer; (c) a requirement that each defendant affirmatively notify its U.S. employees and recruiters and the rail industry at large of the settlement and its obligations; and (d) the Antitrust Division’s new consent decree provisions designed to improve the effectiveness of the decree and the Division’s future ability to enforce it. According to the Antitrust Division:

Market participants are on notice: the Division intends to zealously enforce the antitrust laws in labor markets and aggressively pursue information on additional violations to identify and end anticompetitive no-poach agreements that harm employees and the economy.

The current focus by state law enforcers on franchisors is a new twist, given that restrictive covenant agreements in the franchise industry are typically given more leeway than in the employment context and when entered into between competitors. The distinction being drawn here is apparently that franchisees are competitors of one another, even though they all fall under the same brand tent. It remains to be seen whether the courts will agree, or if anything will come of these investigations. As we previously reported, there are currently pending at least four class actions claiming that provisions contained in franchise agreements prohibiting the hiring of employees of other intrabrand franchisees without the consent of their employer violate the antitrust laws. As always, we will monitor the Attorney General investigation and report back with any updates.