Franchise agreements often contain provisions prohibiting the franchisee from soliciting or hiring workers employed by the franchisor or other franchisees. Such “anti-poaching” agreements have recently come under increased scrutiny from regulators, legislators, and class action plaintiffs.
The Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”) have stated that they view naked anti-poaching agreements (that is, agreements that are separate from or not reasonably necessary to a larger legitimate collaboration between the employers) as per se antitrust violations under the Sherman Act that could result in criminal prosecution. Pending federal legislation would outlaw anti-poaching provisions in franchise agreements. Meanwhile, private plaintiffs have sued franchisors in at least four class actions, contending that anti-poaching provisions in franchise agreements violate federal and state antitrust laws. A federal court in Illinois recently allowed a federal antitrust class action to move forward against McDonald’s.
In light of this increased scrutiny, as well as potential antitrust and joint-employment liability, franchisors should carefully review any anti-poaching provisions in their franchise agreements.
To view the full e-alert, click here