Introduction
No-poach agreements, wherein companies agree not to solicit or hire employees away from a competitor, have been targeted by the White House,1 the Federal Trade Commission (FTC) and the Antitrust Division.2 Although the DOJ's four criminal prosecutions stemming from no-poach agreements have yet to yield any guilty verdicts for Sherman Act violations, the Seventh Circuit recently weighed in on the potential legality under the antitrust laws of employee no-poach provisions in fast-food franchise agreements.
On August 25, 2023, Judge Easterbrook of the Seventh Circuit penned a highly anticipated decision in Deslandes v. McDonald's USA, LLC, 2023 WL 5496957 (7th Cir. Aug. 25, 2023), involving ongoing efforts by fast-food restaurant employees to challenge no-poach provisions in franchise agreements.3 The court reinstated claims by two former McDonald's employees that no-poach provisions in franchise agreements violate Section 1 of the Sherman Act as per se unlawful restraints.4
The decision is notable as the first time an appellate court has opined that a no-poach agreement between competing employers may qualify as an illegal naked restraint under the per se rule. In addition, the court highlighted that it is no defense under the ancillary restraints doctrine if the no-poach provisions help franchise agreements increase output (and benefit consumers in the market for food) if the no-poach provisions harm workers in a separate market for labor. As a result, it would be wise for companies with no-poach provisions in any of their commercial contracts (e.g., a joint venture or supply agreement with a competitor) to take stock of the potential antitrust implications of those provisions.
You Want Fries With That?
Until 2017, McDonald's franchise agreements contained no-poach provisions that prohibited franchise operators from soliciting or hiring employees away from a different franchise, or from the McDonald's company, "until six months after the last date that person had worked for McDonald's or another franchise."5 A resulting class action lawsuit alleged that these provisions violated Section 1 of the Sherman Act as per se antitrust violations.
The district court dismissed the plaintiffs' case, concluding that the no-poach agreements were not illegal per se but instead were justified under the ancillary restraint doctrine because the no-poach provisions helped expand output as part of a franchise agreement.6 The district court also ruled that, as an...
