In a joint brief submitted on November 10th, the U.S. Department of Justice and the Federal Trade Commission argued that McDonald’s “no-poach” agreements appeared to be unlawful. The brief, stemming from a 2017 case, contends that a federal judge ought to have demanded that McDonald’s prove that they were an essential component of franchise agreements before tossing out the lawsuits.
According to Reuters, “The U.S. Department of Justice and Federal Trade Commission, in a joint brief on November 10th, told the 7th U.S. Circuit Court of Appeals that McDonald’s “no-poach” agreements were unlawful on their face, and a federal judge should have required the company to show that they were a necessary feature of franchise agreements before dismissing a pair of consolidated lawsuits.”
The DOJ and FTC claimed in their brief that the no-poach agreements denied workers the chance to improve their working conditions. In addition, it states that it restricts the workers its franchisees can hire.
Noted franchise attorney and industry expert Harold Kestenbaum, Partner in Spadea Law, a Philadelphia Law firm specializing in franchising and franchise law, said, “I understand that the argument that “no-poach” agreements may hinder employees from elevating their employment status by giving them the ability to move to other locations within the chain; however, I also understand why franchisors like McDonald’s want to maintain these provisions. I have put these clauses in most of my franchise agreements. If these clauses remain unlawful, they will hurt these employers rather than help them.
Two former McDonald’s employees are appealing the dismissal of their proposed class actions by U.S. District Judge Jorge Alonso in Chicago in June. They claimed the agreements hampered competition and reduced their earnings. The agreements prohibited franchisees from recruiting former corporate store employees for six months after they departed their positions. The plaintiffs were also supported by a brief on Thursday submitted by the attorneys general of 20 states and Washington, D.C. On Friday, McDonald’s declined to comment right away when asked. Neither did plaintiffs’ attorneys.
Roger Lipton, President at Lipton Financial Services, with over four decades of experience specializing in chain restaurants and retailers, stated: “I suspect this is a question of a five-year-old lawsuit surfacing now that the courts are freed from the Covid-driven limitations to handle everything put before them. Of course, I’m no lawyer, but the action is probably being driven by lawyers being paid on a contingency basis, so this thing could drag on for a while. Mr. Lipton added: Whichever way it goes, I think the industry has more important issues to deal with. Everybody’s moved on, except the lawyers who are still trying to write a ticket and, of course, the plaintiffs who wouldn’t mind a payday either.”
In court documents, McDonald’s claims that in 2017 it ceased forcing franchisees to sign no-poach agreements.