CHICAGO (CN) — The Seventh Circuit scrutinized McDonald's no-poaching policy with its subordinate franchises on Friday morning, in a case that alleges franchise employees nationwide suffered artificial wage suppression.
The case dates back to 2017, when a manager at a Florida McDonald's franchise named Leinani Deslandes applied to fill the same position at another McDonald's franchise. The new location offered better advancement opportunities and would pay her $14.75 an hour, after a 90-day probationary period, to do the same work she had been doing at her present franchise for $12 an hour.
Unfortunately for Deslandes, her employer refused to let her work at the new location.
The terms of McDonald’s contract with its franchises allowed it to do so. The agreement bars franchises from hiring any of each others' employees who have worked at their respective restaurants within the past six months. Franchises can willingly release their employees to go work at another McDonald's location, but Deslandes' employer chose not to.
Deslandes filed a class action against the fast food giant over the no-poaching provision in June 2017, claiming it was a violation of antitrust law that artificially suppressed franchise employees' wages and competition. She was joined by another franchise employee with a similar complaint in 2019.
A long legal battle ensued in Chicago federal court, one which Deslandes and Turner didn't win. The court first denied their class certification, and last year U.S. District Judge Jorge Alonso granted summary judgment to the golden arches. The Barack Obama appointee, one of the more business-friendly judges in the district, opined that McDonald's couldn't prevent Deslandes or Turner from seeking work at other, better-paying restaurant chains.
"Within ten miles of Deslandes’s home were 517 quick-serve restaurants. Accordingly, Deslandes cannot plausibly allege that defendants had market power in the relevant market within which she sold her labor," Alonso wrote in his 13-page opinion from June 2022.
The pair appealed their case in July. In briefs and before a Seventh Circuit appellate panel on Friday, their attorney Dean Harvey, of the San Francisco law firm Lieff Cabraser Heimann & Bernstein, argued that the lower court's decisions to deny class certification and grant summary judgment to McDonald's should both be overturned. He rebuked McDonald's own position that the plaintiffs had not shown the company had power to suppress wages or competition within their local labor market.
"To start, plaintiffs have not even alleged a valid relevant market, having staked their case on not needing to prove one," McDonald's attorney Rachel Brass, of the San Francisco law firm Gibson Dunn & Crutcher, wrote in an October 2021 court memo.
"McDonald's spends a great deal of effort... arguing that the relevant area of competition is purely local," Harvey rebutted on Friday. "Then why in the world was the [no-hire] restraint nationwide? Why was the restraint enforced to prevent movement of workers from California to Florida?"
Harvey added the no-poaching policy made franchisees consider each other as competitors while also acting in collaboration with the larger McDonald's structure. He argued this allowed McDonald's to get away, by proxy, with anti-competitive labor practices which it would not be legally allowed to do were it the plaintiffs' sole employer.
"The restraint required these thousands of independent employers to behave in a manner that was totally inconsistent with a single-brand market," Harvey said.
U.S. Circuit Judge Diane Wood, a Bill Clinton appointee, expressed some skepticism of Harvey's arguments, as did U.S. Circuit Judge Frank Easterbrook. The Ronald Reagan appointee noted that new public-facing employees at McDonald's franchises start at the bottom of the work hierarchy and have to work their way up to better-paying positions. The senior judge argued this could also be seen as suppressing competition, despite it being a common practice in many industries and workplaces.
"Isn't that equally a horizontal restraint affecting the labor market? ... How do you draw the line between those labor market restraints that are permissible and those labor market restraints that are impermissible?" Easterbrook asked.
Harvey responded that restraints are permissible if they are "reasonably necessary" to the franchise system, but Easterbrook considered that argument too broad for a per se ruling on the issue.
Brass, in her own arguments for McDonald's, maintained that the relevant labor market to be considered was not among the thousands of geographically disparate McDonald's franchises across the U.S., but in the larger fast food industry represented by all the different restaurants in the plaintiffs' own neighborhoods.
"The idea that McDonald's does not compete on the labor market as a brand, I think, blinks reality," Brass said.
She further argued that, per precedent set in the 1988 Supreme Court case Business Electronics v. Sharp Electronics, McDonald's was within its rights to impose restraints on its franchises so long as they didn't fix food prices for customers.
Wood was no more sympathetic to Brass than she was to Harvey. She waved off Brass' Business Electronics argument, saying the purchasing market for customers was a separate issue to the labor market for employees.
"Why, if [the franchises] are separate hirers of labor, can McDonald's say, 'you, for the rest of your life, as long as you're working at this McDonald's, cannot be hired by a different McDonald's unless there's one of these releases?'" Wood asked.
Brass repeated the argument from October 2021 in response, saying Deslandes and Turner had not even pleaded a "plausible geographic market" to begin with, making the question moot. The judge was not convinced.
"Couldn't you plead... Deslandes tried to go and sell her services for a better price and she was blocked from doing that. That reflects not only her personal suppression in the wage market, but more general suppression in the wage market," Wood mused.
She and Easterbrook were joined on the appellate panel by U.S. Circuit Judge Kenneth Ripple, a Ronald Reagan appointee, who spoke little during the proceedings. The panel took the case under advisement but did not say when they intend to issue a ruling.
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