New York’s fast-food employers remain in the line of fire. First came the higher minimum wage laws. Next came proposed legislation that mirrors New York City’s “Fair Work Week” laws on “predictable scheduling” and attempts to end the “tip credit.” Now, new Attorney General Barbara D. Underwood recently joined a coalition of other states’ attorneys general who are investigating so-called no-poaching agreements in the fast-food industry.
No-Poaching Agreements Explained
A “no-poaching” agreement is a pact between employer-franchisees that they will not hire or poach employees from other franchisees within the same franchise. So, under such an agreement, a Burger King franchisee agrees that it will not hire away a worker from another Burger King restaurant. Unlike noncompete agreements, which are between employees and their employer and subject to strict judicial scrutiny that often favors employees, no-poaching agreements don’t normally get scrutinized by courts. Further, no-poaching agreements are often buried in an employee handbook or not mentioned at all.
According to the coalition of attorneys general, an estimated 58 percent of all franchise agreements contain a no-poaching clause. The fast-food industry is of particular interest to the coalition because roughly 80 percent of fast-food franchise agreements contain such clauses. The result, according to the coalition, is that the restraint among the franchisees prevents experienced fast-food workers from being hired by another franchisee, resulting in them being forever indentured to the original employer and leading to wage stagnation and professional underdevelopment.
The franchisees point out the tremendous effort and expense they invest in training fast-food workers and the unfairness that would result if a competitor franchisee were allowed to “steal” pretrained talent from another franchisee. They argue that the no-poaching restrictions are needed to “level the playing field” by preventing the loss of trained talent or allowing a franchisee to recover the costs associated with hiring and training new employees.
The franchisees further argue that the current restrictions don’t prevent an employee from leaving to work for another employer outside the franchise organization. In other words, the restraint doesn’t apply to a worker leaving a Burger King restaurant to work at an Arby’s restaurant. Finally, the franchisees point out that qualified and talented fast-food workers will always “rise to the top” at a restaurant, resulting in better pay and leadership opportunities.
What is the Coalition Investigating?
The coalition is gathering the franchise agreements of several fast-food employers to understand the breadth of the no-poaching agreements in the industry. In particular, Underwood’s office is seeking the franchise agreements for Arby’s, Burger King, Dunkin’ Donuts, Five Guys Burgers and Fries, Little Caesars, Panera Bread, Popeye’s Louisiana Chicken, and Wendy’s. The franchises were asked to turn over their agreements and clauses related to poaching no later than August 6, 2018.
Bottom Line
New York seems to have fixated on the fast-food industry in recent years, implementing a crippling special minimum wage provision and proposing new laws that would significantly limit the scheduling of fast-food workers and end the tip credit. It would seem logical that either the attorney general or the legislature will soon seek to end no-poaching agreements. Many franchises have voluntarily removed no-poaching restrictions from their handbooks.
Franchisees and franchisors should keep abreast of the investigation and review their agreements and policies to ascertain if they would be affected by any changes in the law. Employment counsel can keep employers abreast of such changes and help you adjust when they occur.
Angelo D. Catalano is an Associate at Coughlin & Gerhart LLP. He can be reached at acatalano@cglawoffices.com or 607-723-9511.