Labor Secretary Nominee’s Company Hit With Antitrust Class Action

LOS ANGELES (CN) — Carl Karcher Enterprises, whose CEO Andrew Puzder is President Donald Trump’s nominee as secretary of labor, illegally restricts employment and suppresses pay for fast-food managers through contracts that prohibit franchisees from hiring each other’s workers, Carl’s Jr. employees say in an antitrust class action.

Carl’s Jr. shift manager Luis Bautista and former shift manager Margarita Guerrero say in the Superior Court lawsuit that a no-hire provision in contracts between the company and its franchisees prevents experienced managers from moving from one restaurant to another in search of better pay and working conditions.

“Together with its franchisees, CKE has colluded to suppress the wages of the restaurant-based managers, from shift leader up, who work at Carl’s Jr. restaurants in Los Angeles and around the world. … This ‘no hire’ agreement is a naked agreement in restraint of trade,” Bautista and Guerrero say in the Feb. 8 complaint.

Carl Karcher Enterprises, or CKE, is the parent company of Carl’s Jr. and Hardees fast-food restaurants. The class action names only CKE and Carl’s Jr. Restaurants as defendants — not Hardee’s and not Puzder.

But the 23-page lawsuit quotes Puzder frequently. He is a prominent advocate of free market ideals and is seen as an opponent of protections for workers.

Trump nominated Puzder to head the Department of Labor on Dec. 8. His confirmation hearing has been postponed four times and is set for Feb. 16 before the Senate Health, Education, Labor and Pensions Committee.

Puzder’s nomination has drawn strong opposition from labor unions, workers’ rights advocates and Democrats, for his stand against raising the federal minimum wage, his comments about replacing fast-food workers through automation and allegations of frequent labor violations at CKE restaurants, among other things. Puzder also recently admitted that at one time he hired an undocumented worker as a housekeeper — an admission that has torpedoed Cabinet nominees in previous presidential administrations.

CKE general counsel Charles A. Siegel III said in a statement that the company would not comment on specifics of the lawsuit. But he said: “The timing of the filing of this baseless lawsuit is obviously intended to be an attempt, albeit a feeble one, to derail the nomination of Andy Puzder. The plaintiffs and their backers will succeed at neither.”

The antitrust class action begins by stating that Puzder “has professed a deep faith in the ‘free market.’ Employees do not need the protection of government intervention in the labor market, Puzder says, because ‘free market capitalism’ is the only system in the history of the world that produces enough economic growth to meaningfully reduce poverty.’

“But the market for CKE employees is not free.”

Lead plaintiff Bautista accepted a promotion to shift leader at a Carl’s Jr. restaurant in Los Angeles in 2015, and received a raise of less than $2 per hour. His “hours are extraordinarily unpredictable” and his supervisors “frequently berate him,” he says in the complaint.

Guerrero was a shift leader at a Los Angeles restaurant for about a year, until late last year. “Her working conditions were atrocious,” the complaint states, and though she was promised a raise, “she was never paid more than she had been paid as a crew member.”

They both earned a bit more than minimum wage, according to Nina DiSalvo of the workers’ rights nonprofit law office Towards Justice in Denver, lead attorney for the proposed class. Bautista and Guerrero “both believe their wages and working conditions were depressed through the no-hire agreement,” DiSalvo said.

CKE directly owns 10 percent to 20 percent of its approximately 3,500 restaurants; franchisees own the rest.

Puzder and the company have repeatedly said that franchisees operate independently of CKE and each other, according to the class action. It quotes Puzder telling a congressional hearing that “franchisees independently choose the people they hire, the wages and benefits they pay,” and so forth.

But in fact, they are all bound by provisions in their franchise agreements to “not knowingly employ or seek to employ any person then employed by CKE or any franchisee of CKE as a shift leader or higher,” Bautista and Guerrero say, quoting the contracts.

They quote Puzder again to explain why the company insists on the provision: “If employers are competing for the best employees, they will pay more,” he said in a speech.

“CKE and Puzder cannot have it both ways,” the complaint states. “They cannot eschew their responsibilities under the labor and employment laws by embracing a ‘free market’ model constituted by independent, competing franchises, while at the same time restraining free competition to the detriment of the thousands of workers employed by SKE and its franchises.”

It adds: “By Puzder’s own logic, this practice [the no-hire provision] allows employers to pay their employees less.”

The complaint cites another statement from Puzder, who said he is expanding the chain in Texas and the Southeast, because of “California’s nanny state laws.”

David Gurnick, a franchise law expert with Lewitt, Hackman, Shapiro, Marshall & Harlan in Encino, said a 2007 California appellate ruling, VL Systems v. Unisen, supports the plaintiffs’ position.

“When two parties agree not to hire each other’s employees … you’re restraining the employees … and you didn’t ask them,” he said.

The complaint says that CKE general managers are paid about $35,000 to $40,000 a year, assistant managers get $10.50 an hour, and shift leaders about $10 an hour, or about $25,000 a year. The federal poverty level for a family of four is $24,250.

DiSalvo said she believes no-hire agreements are widespread in the fast-food industry. Towards Justice began investigating the practice a while back and “began looking deeper after seeing publicity about Puzder’s statements.”

Towards Justice focuses on wage-theft issues, she said. It is pursuing two national class actions in Denver on behalf of shepherds and foreign au pairs.

The plaintiffs seek class certification, a permanent injunction against the no-hire provision, damages and a court order banning the no-hire provision, and damages for violations of California’s antitrust law, the Cartwright Act, unfair competition, and illegal covenants not to compete.

Local counsel is Jon Tostrud in Los Angeles, assisted by attorneys with Cuneo, Miller & Laduca in Washington, D.C.

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