For the past few years, it seems franchisors have been riding a roller coaster when it comes to no-poach clauses in their franchise agreements. While for a time it seemed as though scrutiny for such clauses might be fading, on
Under the "rule of reason," to succeed, a Plaintiff has to show that the alleged anti-competitive effects of the franchisor's practices outweighed their pro-competitive benefits and justifications. This approach is more favorable for franchisors since it looks at the franchise relationship more holistically and places a higher bar on a plaintiff. However, this new request by the DOJ signals that the sentiment at the DOJ may no longer support that approach.
The chain of thought advanced by the previous DOJ statement of interest was that franchise arrangements are "vertical" since all parties are associated with the same brand which has some shared and overlapping interests. This is considered different from a "horizontal" arrangement between bona fide competitors. The former is thought to have redeeming qualities that can overcome any potential negative impacts. However, those who feel all franchise relationships should fall into the "horizontal" camp (or be treated the same as those in the "horizontal" camp) claim that no-poach arrangements limit opportunities for mobility and compensation for employees and therefore run afoul of anti-trust laws, regardless of any ancillary benefits or justifications.
The DOJ is seeking to file its statement of interest by
As franchisors enter the 2022 annual season for franchise disclosure document updates, now is an excellent time to review their franchise agreements concerning this subject matter and make any needed changes.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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