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Justice Department Defends Stance on Fast Food No-Poach Pacts

Nov. 13, 2019, 8:56 PM

The Justice Department defended its stance on no-poach agreements saying that such contracts shouldn’t be deemed automatically illegal since they can protect small business owners.

In the franchise context, notably with fast food chains, such agreements give small business owners “assurances” that new employees can’t immediately jump to a competitor after resources and time have been spent training new hires, Makan Delrahim, the chief of the DOJ’s antitrust division, said Nov. 13 during a House Judiciary antitrust subcommittee hearing.

No-poach agreements, which involve companies agreeing not to hire each others workers, typically are viewed as anti-competitive since they can drive down wages for workers and prevent job mobility. However, since March, the DOJ has defended the use of such agreements in private antitrust case filings, saying courts need to weigh their the pro-business justifications notably when it’s apart of a franchise arrangement.

Several House members, including Rep. Pramila Jayapal (D-Wash.), criticized the DOJ’s position saying no-poach pacts should unequivocally be deemed as anti-competitive.

“Why extend significant energy and precious resources in filing these briefs that allow large franchise corporate chains to get away with using no-poach agreements under what I would argue are pretty flimsy justifications,” Jayapal said.

The DOJ’s stance is “not consistent with past positions,” Jayapal added, referencing a 2016 statement the DOJ released with the Federal Trade Commission saying that the government intended to criminally prosecute companies that formed such agreements.

No-poach agreements in the franchise context, “absolutely protects workers because it provides small business owners the incentive to train employees,” Delrahim said.

“Every franchise and restraint may be different so they should not be banned as per se illegal, there should be a separate test,” Delrahim added.

To contact the reporter on this story: Victoria Graham in Washington at vgraham@bloomberglaw.com

To contact the editor responsible for this story: Seth Stern at sstern@bloomberglaw.com