In a recent post, I expressed the view that no-poach clauses in franchise agreements are unlikely to violate the antitrust laws. Recent activity, however, has given me a “maybe yes, maybe no” on my prediction.

First, two recent rulings offer differing views on the issue of the appropriate standard to apply to the antitrust analysis. The possible standards of review, from the most lenient to the most demanding, include per se (automatically illegal), quick look, and rule of reason. On August 7, 2019, in Conrad v. Jimmy John’s Franchise, LLC, No 3:18-cv-00133 (S.D. Ill.), the Court refused to grant the franchisor’s request for an interlocutory appeal from a prior order of the Court allowing the employee’s per se pleading to stand. By contrast, on July 29, 2019, in Ogden v. Little Caesar Enterprises, Inc., No. 18-12792 (S.D. Mich.), the Court dismissed the complaint, with particularly strong criticism of the employees’ attempted application of a per se or quick look standard. The Court additionally commented that the “plaintiff has not made a serious effort to state a case under a rule-of-reason antitrust theory.”

Second, several New England states, including Massachusetts, Vermont, and Rhode Island, have enacted wage limitations on an employer’s right to require non-compete agreements from employees. Essentially, employers are prohibited from asking low paid employees to sign non-competes. Similar legislation has been introduced in several other states.

The two cases cited above, both obviously at an early stage, made me reassess my optimism. However, the procedural setting of the Conrad case (which began life with a Sylas Butler as lead plaintiff) leads me to believe that my now-cautious optimism is reasonable. The Court’s original ruling was issued in July 2018, by a now-retired federal judge. In the most recent opinion more than one year after that ruling, the newly-assigned judge viewed the ruling as “law of the case,” and that the franchisor had not demonstrated clear error. That’s not a ringing endorsement of the applicability of the per se standard, particularly in comparison to the language of the Court in the Ogden case. Action by state legislatures to curb the use of non-competes, however, may moot these judicial pronouncements.

I was absolutely correct in one comment in the prior blog: if you have franchisees or dealers in Washington, all bets are off. The state of Washington has reportedly entered into settlements with four additional national chains prohibiting the enforcement of “no poach” contract provisions.

As I said before: if a no-poach clause isn’t really necessary, why run the (however small) risk?

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