New Jersey Employment Lawyers Blog
New Jersey employees of four different fast-food chains won a significant victory last month when it was announced that they would no longer use or enforce “no-poach” contracts or agreements to restrict their employees. The chains – Dunkin’, Five Guys, Arby’s, and Little Caesar’s – came to formal agreements with the State of New Jersey to end the practice. These agreements were made in the wake of an investigation into the practice, launched by the Attorneys General of 13 states, including New Jersey. New Jersey’s Attorney General Gurbir Grewal released a statement regarding the agreements, saying “I am glad that Arby’s, Little Caesar, Five Guys and Dunkin’ now recognize the unfairness of no-poach agreements and will stop using them, and I am proud of the multistate investigation that led to their change of heart.”
The particular agreements at issue here restricted fast-food employees from leaving their employment to work for a different franchise of the same fast-food company. For example, a cashier at a Dunkin’ in New Brunswick would be restricted from working as a cashier at a Dunkin’ in Trenton. Upon applying to the Trenton location, the prospective employee would disclose their previous employment at the New Brunswick location, causing the Trenton location to deny the employee’s application. This can be particularly harmful when, for example, the New Brunswick cashier applies for a vacant store manager position at the Trenton location because there was no managerial position open at the New Brunswick location. In this case, the no-poach agreement doesn’t just stifle competition, it harms the individual employee by denying them an opportunity to advance their career and increase their earning potential.
The rationale supporting these agreements, ostensibly, is a need to protect the resources expended on training the departing employee. Without these agreements, the fast-food companies argue, franchisors would be damaged as they would not be able to recoup the investment they made in the employee. Additionally (though this is not one of their stated rationales) these agreements provide substantial benefit to franchisors by reducing wages and depressing wage growth. By outlawing an employee from working for another franchisor, the franchisor in question insulates themselves from competing with that franchisor. There is no concern that an employee will go to the competitor for better pay, so there is no incentive to offer better pay. This is an insidious result of no-poach agreements, and one of the main reasons they have come under so much scrutiny in recent years. This is closely related to the concern that no-poach agreements may also run afoul of Federal anti-trust law, as the franchisors could be viewed as colluding to fix wages.