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University of Chicago Law Review

Abstract

As Professor Eric A. Posner and others have trained our attention on labor market power, one category of labor mobility restrictions to come under fire is franchise no-poach agreements. These provisions have frequently been included in franchise agreements and prevent franchisees subject to them from hiring away each other’s employees. For example, for many years such agreements precluded Jimmy John’s franchisees from hiring each other’s sandwich makers. If a Jimmy John’s worker wanted to move to the shop across town, they could not have done so without the approval of the Jimmy John’s where they worked. In 2016, roughly half of major franchise chains included no-poach agreements in their franchise contracts. The employees whose mobility was restricted by these no-poach agreements never saw or signed them, but they could be turned away from a job because of them anyway.

The fight against franchise no-poach agreements began in 2017 and is currently taking place on several fronts. Employees have filed class action lawsuits against McDonald’s, Little Caesar’s, Domino’s, and other companies challenging franchise no-poach agreements. These lawsuits have met with mixed success—some have been dismissed because employees agreed to arbitrate their claims against the franchisor, or because they failed on a rule of reason analysis. Under the rule of reason, courts assess the overall economic effects of a practice to determine whether it is forbidden by the antitrust laws, and antitrust plaintiffs are often ill-equipped to offer the economic evidence courts demand. Other cases, including the one against McDonald’s, continue to be litigated. In 2018, Congress proposed legislation that would have prohibited these franchise no-poach agreements nationally, but it failed to move forward. An extremely effective effort to chase these agreements out of the franchise ecosystem, however, has emerged in Washington State. The Evergreen State’s attorney general, Bob Ferguson, began suing franchisors in 2018, alleging that no-poach agreements violate antitrust law. By 2020, when Ferguson ended his investigation, more than 200 franchisors had agreed to stop using no poach agreements, covering an estimated 197,000 franchise locations nationwide.

This recent experience with enforcement against franchise no-poach agreements offers insight into how antitrust law evolves. This Essay offers reflections on the role of federal, state, and private antitrust enforcement in that process. It argues that private lawsuits and state enforcement were a suboptimal way to reach the place where we are today—where these agreements are being abandoned by most major franchisees. From one angle, the franchise no-poach fight appears to show the virtues of America’s distributed antitrust decision making. Word of the harms of these agreements spread among economists, plaintiff’s lawyers, politicians, and a state attorney general, each of whom was able to participate in the movement to force companies to abandon them. But compared to a plausible alternative— a statement early on from the federal enforcers on the legality of such agreements—the way the franchise no-poach fight played out was inefficient and driven by an enforcer who is not politically accountable to those whom his actions affected.

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