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Friday, December 8, 2023 | Back issues
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Appellate court revives challenge to McDonald’s employee-poaching rules

Two employees' class-action case against the fast-food giant can proceed after a ruling by the Seventh Circuit.

CHICAGO (CN) — The Seventh Circuit brought back a challenge by McDonald’s workers to the company’s inter-franchise, anti-poaching clauses Friday, finding that they had raised a plausible antitrust claim against the fast-food giant. 

Florida McDonald’s manager Leinani Deslandes first brought her class-action antitrust suit against the restaurant chain in 2017 after she had to decline a higher-paid job at another McDonald’s franchise because of the company's anti-poaching agreements. U.S. District Judge Jorge Alonso granted summary judgment to McDonald’s in 2022, finding that the presence of other fast-food restaurants in Deslandes and co-plaintiff Stephanie Turner’s home markets meant that McDonald’s didn’t have the market power to justify their antitrust claims — a contention which the Seventh Circuit panel upheld. 

The three-judge panel decided in an order issued Friday afternoon, that Alonso ran astray in finding that the anti-poach clauses were ancillary to franchise agreements and therefore permissible under the Sherman Act. In an opinion penned by U.S. Circuit Judge Frank Easterbrook, a Ronald Reagan appointee, the panel found that the employees had alleged a horizontal restraint that did not contribute to the output of McDonald’s and its franchises. 

“One problem with this approach,” Easterbrook wrote of Alonso’s finding, “is that it treats benefits to consumers (increased output) as justifying detriments to workers (monopsony pricing). That’s not right; it is equivalent to saying that antitrust law is unconcerned with competition in the markets for inputs.” 

Another problem, Easterbrook continued, was that McDonald’s had not established that their no-poach clauses promoted their actual production. “Is there some reason to think that a no-poach clause promotes the production of restaurant food?” he asked. “Maybe it just takes advantage of workers’ sunk costs and helps each business’s bottom line, without adding to output.” 

He went on to detail other questions as to the effects of the no-poach clauses. Employees, Eastbrook noted, might accept lower wages when first starting work in order to compensate for lower productivity during training — but sustaining those low wages would mean the franchises they worked for were appropriating the value of the workers’ investments in training.

Whether this was happening, he wrote, “can’t be answered by observing that any given franchise contract, viewed by itself, expands the output of food. Why did the clause have a national scope, preventing a restaurant in North Dakota from hiring a worker in North Carolina, when the market for restaurant jobs is local?” These and other questions, he said, “require careful economic analysis” that had not been undertaken by the summary judgment stage. 

In vacating the summary judgment, Easterbrook also advised that the district court “may think it wise to reconsider” its denial of class certification to Deslandes and Turner on remand. 

Easterbrook — joined by U.S. Circuit Judge Diane Wood, a Bill Clinton appointee, and fellow Reagan appointee, U.S. Circuit Judge Kenneth Ripple — heard Deslandes and Turner’s appeal in March. At that hearing, attorneys for McDonald’s focused heavily on the plaintiffs’ failure to plead that the contracts impacted a relevant market, which their opponents argued was not necessary. 

The decision should be welcome news to the Department of Justice and Federal Trade Commission, which filed a joint brief to the Seventh Circuit in November arguing that the the no-poach agreements were unlawful on their face. In court filings, McDonald's has clarified that it stopped requiring franchisees to sign the agreements in 2017.

Attorneys for both parties did not return requests for comment by press time.

Categories / Appeals, Business, Law

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