?Takeaway: The appeals court’s decision in this case highlights the caution that companies—whether operating as part of a franchise system or as competitors—must exercise in entering into formal or informal agreements relating to the retention of employee talent. In the current labor market, it may be tempting for competing businesses to enter into informal agreements or understandings to prevent staff departures, as well as rehiring of former employees. However, it is not uncommon for federal and state regulators to investigate arrangements that may implicate the Sherman Act or similar state antitrust statutes.
?The 11th U.S. Circuit Court of Appeals found that plaintiffs’ claims under the Sherman Act could proceed because the defendants’ “no-hire” agreements amounted to “concerted action” in restraint of trade under the act.
The majority of Burger King Corp. (BKC) restaurants are independently owned franchise establishments, while the remainder are corporate-owned restaurants. BKC grants franchisees a license in exchange for a franchise fee and a percentage of royalties generated from operations. In addition to the franchise fee and royalties, Burger King requires franchisees to agree to various nonfinancial obligations set forth in a franchise agreement.
Between 2010 and 2018, such franchise agreements contained, among other obligations, a provision that provided, in part, that “[n]either BKC nor franchisee will attempt … to entice or induce, or attempt to entice or induce any employee of the other or of another franchisee of BKC to leave such employment, or employ such employee within six months after his or her termination of employment with such employer, except with the prior written consent of such employer.”
The plaintiffs, all of whom worked for various Burger King franchisees between 2010 and 2018, filed suit against BKC and related entities in the U.S. District Court for the Southern District of Florida, alleging that the no-hire agreement constituted a violation of Section 1 of the Sherman Act. Section 1 of the act prohibits any “contract, combination in the form of trust or otherwise, or conspiracy” that creates a restraint on trade or commerce. BKC and its related entities filed a motion to dismiss the plaintiffs’ complaint, arguing that BKC and the various franchisees were not separate actors for purposes of the Sherman Act and thus were not capable of engaging in concerted action for antitrust purposes. The district court granted the motion.
On appeal, the 11th Circuit began by noting that the relevant analysis for determining whether the act applies to a particular situation is whether the “arrangement” at issue is between separate economic actors and whether such actors are capable of independent decision-making. The court also noted that the relevant inquiry is not whether the actors engage in decision-making for all business purposes, but only whether the decision giving rise to alleged antitrust violations involved concerted decision-making and action.
Applying these principles to the no-hire agreement between BKC and its franchisees, the court observed that, “though they certainly have some economic interests in common, each separately pursue their own economic interests when hiring employees.” Further, the franchise agreement itself made clear that competition could—and indeed did—exist among BKC and the franchisees with respect to labor.
In sum, the court concluded that “there’s just no question that Burger King and its franchisees compete against each other and have separate and different economic interests.” The court also noted the fact that each franchisee is an independent decision-maker with respect to hiring decisions. Given the foregoing, the court reversed the district court’s dismissal of plaintiffs’ complaint and concluded that the case could proceed.
Arrington v. Burger King Worldwide Inc., 11th Cir., No. 20-13561 (Aug. 31, 2022).
Jonathan E. O’Connell, SHRM-SCP, is a lawyer with Odin, Feldman & Pittleman PC in Reston, Va., where he focuses his practice on counseling employers regarding human resources matters.
