Daily Labor Report®

11 States Probe Fast-Food Companies on ‘No-Poach’ Pacts (1)

July 9, 2018, 7:51 PMUpdated: July 9, 2018, 8:43 PM

A coalition of 11 state attorneys general questioned fast-food restaurant chains on “no-poach” agreements that restrict franchisees from recruiting or hiring from other outlets in the same chain.

A July 9 letter from the AGs sought information and documents on the practice, which it said raises concerns that low-wage employees face unfair limits on their ability to switch to better jobs. “Workers deserve to have the opportunity to earn higher wages and seek promotions,” New York Attorney General Barbara Underwood said in a statement, “yet no-poach provisions make that impossible.”

The inquiry opened up a new front in continuing legal drives by workplace regulators in Democratic-controlled states on wages and working conditions in fast-food restaurants. Earlier campaigns have focused on the minimum wage, overtime, work-related employee expenses, scheduling, and noncompete agreements.

The letter went to eight fast-food chains: Arby’s, Burger King, Dunkin’ Donuts, Five Guys Burgers and Fries, Little Caesars, Panera Bread, Popeyes Louisiana Kitchen, and Wendy’s.

Trade Group Responds

The International Franchise Association, which represents nearly three-quarters of a million franchise establishments, responded to the letter with a pledge to work with lawmakers on legislation to address no-poach agreements and other worker protection issues.

“Franchising provides a path of employment, job training, and career advancement for employees on a large scale,” Matt Haller, the group’s vice president for government relations and public affairs, said in a July 9 statement. “As the preeminent stakeholders on this issue, IFA hopes the lawmakers are willing to engage with us in a constructive way to find a solution that protects workers’ rights and promotes economic growth.

“Though every individual brand is different, many companies have already eliminated anti-poaching clauses in their agreements and others are reviewing their own policies,” the statement said. “IFA’s door remains open to lawmakers who want to work with us in a constructive fashion to ensure fairness for employees and employers alike.”

Research Findings

The attorneys general cited a July 2017 Princeton University study finding that 58 percent of major franchisers have no-poach provisions in their agreements with franchisees, and that 80 percent of fast-food franchisers have them. It also drew on a March 2016 Treasury Department report saying that noncompete agreements harm state and local economies.

The no-poach provisions—also known as employee noncompetition, no-solicitation, no-hire, or no-switching agreements—foster persistently low wage growth and stifle competition, the state officials said. They make it hard for workers to improve their pay by moving to another job, the officials added.

The inquiry was led by Massachusetts Attorney General Maura Healey (D) and joined by New York, California, the District of Columbia, Illinois, Massachusetts, Maryland, Minnesota, New Jersey, Oregon, Pennsylvania, and Rhode Island.

Dunkin’ Donuts: Not Us

One of the recipients of the letter, Dunkin’ Donuts, denied having the agreements.

“Dunkin’ Donuts does not have any provision in our franchise agreement that prohibits franchisees from hiring workers from other franchisees,” Dunkin’ Brands Group Inc. said in a July 9 statement.

The chain’s restaurants “are independently owned and operated by individual franchisees, independent business owners solely responsible for running their day-to-day operations, including all employment decisions,” the statement said. “They are required to comply with all applicable local, state and federal laws.”

The company added, “As a franchisor, we are not in a position to intercede in franchisees’ employment matters.”

Representatives of the other chains didn’t immediately respond to requests for comment.

(Updated to include trade association statement.)

To contact the reporter on this story: John Herzfeld in New York at jherzfeld@bloomberglaw.com

To contact the editor responsible for this story: Terence Hyland at thyland@bloomberglaw.com

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