Arrington v. Burger King Worldwide, Inc., No. 20-13561 (11th Cir. Aug. 31, 2022) – In October 2018,a former line cook of a Burger King franchise restaurant in Illinois, filed a class action complaint in the District Court for the Southern District of Florida against Burger King Worldwide and Burger King Corporation (collectively, "Burger King" or "BKC")1, for violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, based on Burger King's inclusion of an employee no-solicitation and no-hire provision (the "No-Poaching Clause") in its standard franchise agreement.
Specifically, the employee plaintiffs2 alleged in their complaint that every Burger King franchisee who entered into BKC's standard franchise agreement, between 2010 and September 13, 2018,3 was required to agree to the following provision:
Neither BKC nor Franchisee will attempt, directly or indirectly, 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 (6) months after his or her termination of employment with such employer, except with the prior written consent of such employee.
According to the plaintiffs, the foregoing No-Poaching Clause gave Burger King and its franchisees the power to suppress restaurant employee wages and eliminate competition for labor between Burger King restaurants, by restricting employee mobility, and thus, limiting employee bargaining power to seek increased wages and improved working conditions.
The plaintiffs further asserted that Burger King restaurants, the significant majority of which are independently-owned and operated, are competitors in the labor market, as evidenced by the fact that, inter alia, BKC expressly informs franchisees that they are not granted exclusive territories, and may face competition from other franchised or company-owned Burger King restaurants or other distribution channels or brands owned by BKC that could affect customer trading patterns. The plaintiffs concluded, therefore, that the No-Poaching Clause was a naked restraint of trade and per se violation of federal antitrust laws, because it constituted a concerted action and undertaking between direct competitors that illegally eliminated the competition for restaurant labor between Burger King and its franchisees and amongst franchisees. The plaintiffs argued, in the alternative, that the BKC defendants are liable under a quick-look analysis, because the No-Poaching Clause on its face was anti-competitive and lacked legitimate justification.
Burger King moved to dismiss the class action complaint for failure to state a claim, which motion was granted on March 24, 2020. Relying on Copperweld Corp. v. Independent Tube Corp., 467 U.S. 752 (1984) and American Needle, Inc. v. National Football League, 560 U.S. 183 (2010) as guideposts, the district court observed that Burger King's relationship with its franchisees more closely resembles a parent-subsidiary or a corporation organized into divisions or de facto branches like the sponsored banks in United States v. Citizens & Southern National Bank, 422 U.S. 86 (1975). The district court reasoned that while, conceptually, franchisees are potentially capable of competing with each other for employees or customers, that piece is just one component of a broader interdependent relationship, which relies on a uniform system subject to close supervision by BKC that enhances the system's overall ability to compete with other burger chains. The court, therefore, held that Burger King and its franchisees are not separate economic actors for purposes of federal antitrust laws. The employee plaintiffs appealed.
Now, more than two years later, the putative class action has been given new life by the Eleventh Circuit, which recently reversed the district court's decision. There, the court noted that whether an arrangement rises to the level of concerted action depends on the key question of whether the alleged agreement joins together independent centers of decision-making. The court relied heavily on American Needle in answering the foregoing question,and explained that the Supreme Court's decision teaches that the concerted-action inquiry is a focused one, and courts do not consider whether actors engage in concerted activity for all purposes, but just whether the decision(s) in question involved concerted action. To that end, the appellate court found that, although Burger King and its franchisees have some economic interests in common, each independent Burger King restaurant pursues its own economic interests when making hiring decisions (which might include, in the absence of the No-Poaching Clause, soliciting stand-out employees from other Burger King restaurants) and establishing the terms of conditions of employment for its employees without consultation with or approval by BKC.
Accordingly, the Eleventh Circuit held that the plaintiff had plausibly alleged that the No-Poaching Clause qualified as "concerted activity" for purposes of Section 1 of the Sherman Act. The court declined to address the BKC defendants alternative argument that, even if § 1 scrutiny applied, any restraint on trade was not unreasonable, because the determination of what level of scrutiny to apply and corresponding analysis was better left to the district court to handle in the first instance.
The final outcome of the underlying trial case in Arrington could have far-reaching implications with respect to franchise relationships and the extent to which franchisors and franchisees can agree to act together to pursue common interests.4
1. Restaurant Brands International, Inc. and Restaurant Brands International LP were subsequently joined as additional BKC defendants.
2. A former crew member of a Burger King franchise in New Orleans and a former general manager of another Burger King franchise in Illinois subsequently joined in the action as named plaintiffs.
3. On September 13, 2018, Burger King entered into that Assurance of Discontinuance with the State of Washington, wherein BKC agreed to, inter alia,no longer include the No-Poaching Clause in any of its franchise agreements, and not to enforce the No-Poaching Clause in any existing agreements.
4. Franchisors should likewise be watching a similar case – Deslandes v. McDonald's USA, LLC, No. 17-cv-4857 (N.D. Ill.), where the district court previously denied class certification, and, in June 2022, granted judgment in favor of McDonald's on the plaintiffs' antitrust claims involving McDonald's inclusion of [vertical] no-hire provisions in its franchise agreements. That case is currently on appeal before the Seventh Circuit.
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