DLA Piper IPT attorneys Barry Heller, John Hughes and Karen Marchiano recently conducted a webinar reviewing 2018's top franchise developments. Two stand out from the rest.
Provisions prohibiting the franchisee from hiring an employee from another franchisee or the franchisor have come under attack. Concern over these clauses stems from Department of Justice and FTC guidance issued in 2016, providing that "naked" no-poaching agreements among companies are per se unlawful under federal antitrust laws. But the guidance also said no-poaching clauses that are ancillary or reasonably related to otherwise pro-competitive agreements would be assessed under a more lenient standard, such as the rule of reason.
As a result of activity by state attorneys general, many franchisors have agreed to eliminate no-poaching clauses from their future agreements and not to enforce them in existing agreements. At least one franchisor, Jersey Mike's Subs, refused to settle and became embroiled in litigation with Washington State.
Employees of franchisees have also filed putative class actions against many of the largest franchisors, asserting that these no-poaching clauses constitute per se violations of antitrust laws. Recently, the DOJ filed notices of intent to file a statement of interest in three of these actions, informing the court of its position that no-poaching clauses in franchise agreements should not be assessed under the per se standard, but under a rule of reason. The Washington State Attorney General filed a submission asserting such clauses should be treated as per se illegal under Washington State antitrust law.
As of the time of this printing, we await court rulings on these filings.
Joint employer claims
In 2018, franchisors continued to face lawsuits asserting they were the joint employers of their franchisees' employees. While such claims have largely survived motions to dismiss, the trend that they face defeat on summary judgment has continued: Jimmy John's prevailed on summary judgment in the Northern District of Illinois and Domino's prevailed on summary judgment in the Southern District of New York.
On the National Labor Relations Act front, the United States Court of Appeals for the DC Circuit ruled in Browning-Ferris Industries v. NLRB, 911 F.3d 1195 (D.C. Cir. 2018) (a non-franchise case closely watched by the franchise community) that the NLRA's test for joint employer status is determined by the common law of agency, under which to be a joint employer, control – which can be direct or indirect, exercised or reserved – must bear on the essential terms and conditions of the worker's employment.
Franchisors are waiting to see how this test is applied in the franchise context to controls franchisors exercise over their franchisees.
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