Franchise agreements commonly prohibit the franchisee from soliciting or hiring workers employed by the franchisor or other franchisees. This may take the form of “no-hire” or “no-switching” clauses that prohibit hiring each other’s employees, or “non-solicitation” clauses that prevent a franchisee from soliciting another franchisee’s employees. These “anti-poaching” covenants have come under government scrutiny, due to the concern that they unfairly hold down wages for millions of employees working in quick and full-service restaurant, automotive and other franchised industries.

Eleven state attorneys general are investigating several national franchisors for anti-poaching provisions in their franchise agreements. The Washington attorney general's office obtained agreements from seven major brands to no longer enforce such language and to remove the clauses from their franchise agreements. At the federal level, the Federal Trade Commission and Antitrust Division of the U.S. Department of Justice issued joint guidance that they consider “naked” no-poach or no-hire provisions to be illegal restraints of trade. U.S. senators Elizabeth Warren and Cory Booker introduced legislation this year, the End Employer Collusion Act, to prohibit anti-poaching provisions in franchise agreements. Class action lawsuits on behalf of affected employees have been filed across the country against fast-food franchisors McDonald's, Pizza Hut, Jimmy John’s and Carl's Jr. in state and federal courts.

Franchise systems recognize that anti-poaching provisions protect franchisees’ investments by avoiding having trained quality employees solicited away by fellow franchisees. The movement challenging these clauses argues that they keep employees from being offered hire wages. Sometimes the clauses can be overbroad. Some provisions apply to only management employees, while others cover all workers. Some apply to current and former employees. Some prohibit franchisees from soliciting each other’s employees or the franchisor’s employees.

Many franchisors are evaluating increased risks of continuing to use these provisions in the current climate. In light of increased scrutiny, franchisors should consult counsel to carefully review any anti-poaching provisions in their agreements to evaluate whether to keep or remove them, and if maintained, ensure they are not overly restrictive, and assess how they can be tailored to achieve pro-competitive benefits without raising the specter of anti-competitive practices.