“No-Hire” and “No-Poach” Agreements are Drawing Increased Scrutiny From Courts

By Ashley Graves, Law Clerk

             The Court of Appeals for the Eleventh Circuit recently discussed the importance of Section 1 of the Sherman Act when plaintiffs alleged that no-hire agreements between Burger King and its franchisee restaurants constituted “concerted action” for antitrust purposes.  The court’s decision in Arrington v. Burger King Worldwide, Inc. continues the recent trend of “no-poach” or “no-hire” agreements drawing increased scrutiny from courts.[1]

Arrington – Background

             From 2010 until at least September 2018, Burger King incorporated a “No-Hire” Agreement into its standard franchise agreement.  This agreement forbade the Burger King Corporation and its franchisees from attempting to hire, or “poach,” any current employee of Burger King or of another Burger King franchisee, nor could they hire any employee of the Corporation or of a franchisee for six months after the employee left his or her original Burger King restaurant.  Burger King ultimately removed this provision from new franchise agreements, but thousands of established Burger King restaurants still operated under this old provision. 

Plaintiffs were all employees of Burger King franchise restaurants who asserted that the No-Hire Agreement prevented them from obtaining more competitive employment at other Burger King restaurants, resulting in depressed wages and reduced employment opportunities within the Burger King organization.  Plaintiffs asserted that the No-Hire Agreement amounted to an unreasonable restraint on trade in violation of § 1 of the Sherman Act since the Agreements prohibit Burger King franchisees from competing with each other and with the Corporation in attracting and retaining labor.

The Lawsuit

Section 1 of the Sherman Act prohibits any contract, combination in the form of trust or otherwise, or conspiracy that restrains trade or commerce.[2]  Plaintiffs needed to demonstrate “concerted action” to avoid dismissal of their antitrust claim.  Adopting the Supreme Court’s language in American Needle, Inc. v. National Football League, the Eleventh Circuit reiterated that the relevant inquiry “‘is whether there is an arrangement amongst separate economic actors pursuing separate economic interests, such that the agreement deprives the marketplace of independent centers of decisionmaking, and therefore of diversity and entrepreneurial interests.’”[3]  Importantly, the court clarified that it is not determinative that two parties to an alleged Section 1 violation are legally-distinct entities.

Referencing American Needle, the court noted that the analysis must focus on whether the decision or decisions in question involved concerted action.  Here, the court examined whether Burger King and its franchisees undertook concerted action through the No-Hire Agreement, and ultimately determined that the agreement joined together independent centers of decisionmaking.  In reaching its conclusion, the court highlighted that despite having some economic interests in common, “each separately pursue[d] their own economic interests when hiring employees,” and that independence also extended to hiring decisions.  Specifically, “in the absence of the No-Hire Agreement, each independent Burger King restaurant would pursue its own economic interests and . . . fully make its own hiring decisions, including about wages, hours, and positions.”  Franchisees “might even attempt to entice stand-out employees to leave one restaurant and join their own.”  

However, according to the court, the No-Hire Agreement removed that ability, including by prohibiting the hire of a Burger King employee for six months after he or she was no longer with a prior Burger King restaurant/franchise.  Thus, “the No-hire Agreement deprive[d] the marketplace of independent centers of decisionmaking about hiring, and therefore of actual or potential competition.”  For these reasons, Plaintiffs plausibly alleged that the No-Hire Agreement qualified under Section 1 of the Sherman Act potentially qualified as concerted activity and that the district court erred in dismissing Plaintiffs’ complaint on this basis.

Key Takeaways

Many business entities opt to include no-poach or no-hire agreements to reduce or eliminate the likelihood that it will be considered a joint employer if a franchisee, for example, has an action brought against it.  However, the Arrington ruling illustrates tension between the independence necessary to limit joint-employer liability with that same independence being leveraged by workers to allege antitrust violations against entities that do not employ them.  Given this increasingly common issue, employers may want to re-evaluate their no-poach or no-hire agreements.  

[1] Arrington v. Burger King Worldwide, Inc., ---F.4th----, 2022 WL 3931471 (11th Cir. 2022).

[2] 15 U.S.C. § 1.

[3] Quoting American Needle, Inc., v. National Football League, 560 U.S. 183, 195 (2010).