Restaurants Agree to End "No-Poach" Agreements

Labor LawEight restaurant chains have agreed to stop using franchise agreements that prohibit workers from taking better-paying jobs at other branches of the same chain.

As NPR reported, Applebee's, Church's Chicken, Five Guys, IHOP, Jamba Juice, Little Caesars, Panera, and Sonic have agreed to end the use of what are called "no-poach" agreements and to a make sure they're not used in future franchise contracts.

The eight companies have more than 15,000 locations nationwide and employ hundreds of thousands of workers.

The agreement came as a result of action by the Washington state attorney general.

A number of other chains — Arby's, Auntie Anne's, Buffalo Wild Wings, Carl's Jr., Cinnabon, Jimmy John's and McDonald's — had earlier agreed to stop using such agreements, under the threat of legal action by the attorney general.

Fast Food

The Washington state Attorney General, Bob Ferguson, said that his goal was "to eliminate no-poach clauses in the fast-food industry nationwide."

As the Attorney General's statement noted,

No-poach provisions appear in lengthy franchise agreements that owners of fast-food franchises sign with corporate headquarters. Consequently, employees are generally unaware the provisions even exist. In effect, the provisions prohibit employees from moving among restaurants of the same corporate chain — for example, prohibiting one Little Caesars employee from accepting employment from another Little Caesars franchise location for higher pay.

Because employees cannot move to another location within their corporate brand, their current location has less incentive to give them raises.

About 80% of restaurant chains are believed to use no-poach language in their franchise contracts, as compared to 58% of other types of franchises.

As NPR noted, in July

the attorneys general of 10 states and the District of Columbia announced they were investigating the practice at Burger King, Wendy's, Arby's, Panera, Dunkin' Donuts, Five Guys, Little Caesars and Popeyes.

Protecting the Investment

As NPR reported, "Companies have said the agreements are meant to protect their investment in training and hiring workers."

Factory workers and non-managers in the service sector (including restaurant workers) represent 82 percent of the labor force, according to the Times.

As the Times notes, the restaurant industry is one of the largest employers in the US and the source of many new jobs:

Fast-food restaurants have generated more jobs than nearly any other sector since the recession. About 4.5 million people work at so-called limited service restaurants, according to the most recent figures from the Bureau of Labor Statistics.

Depressed Wages

Economists believe that no-poach clauses reduce job opportunities for low-wage workers and depress wages.

As the New York Times noted,

The United States labor market is closing in on full employment in an economic expansion that just began its 10th year, and yet the real hourly wage for the working class has been essentially flat for two years running.

Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities, wrote in the Times, wages are depressed by

increased concentration of companies and their unchecked ability to collude against workers, through anti-poaching and mandatory arbitration agreements that preclude worker-based class actions.

As the Times noted,

No-poach clauses came under particular scrutiny last year after two prominent economists at Princeton University published a paper in which they argued that the restrictions appeared to exist chiefly to limit competition and turnover, potentially affecting pay in the process.

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