CHICAGO — A federal judge has curbed a nationwide class action facing McDonald’s over its former “no poach” employment policies, saying plaintiffs' lawyers missed when they took a swing at a chance to cash in on hundreds of millions of dollars in potential attorney fees from a "nationwide-class jackpot."
Leinani Deslandes sued McDonald’s Corporation in Chicago in 2017, alleging the burger chain violated the federal Sherman Antitrust Act by “reducing wages and worsened working conditions” by barring franchisees from hiring employees from other McDonald’s, thus depriving them of better wages. Stephanie Turner later filed a related suit, and the two asked U.S. District Judge Jorge Alonso to certify a nationwide class of people who worked for McDonald’s from June 28, 2013, to July 12, 2018.
According to Alonso, who denied the motion in a July 28 opinion, the challenged hiring policy was written into McDonald’s franchise agreements from at least 1973 to March 2017. In July 2018, McDonald’s agreed with the attorney general in Washington State to drop the provision from future franchise agreements and stop enforcing it with existing deals.
U.S. District Judge Jorge Alonso
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Although Alonso said the class definition easily met numerosity requirements, he said the issue of certification hung on the question of how to properly analyze the antitrust claim. The women said Alonso need only apply a “quick look” process, while McDonald’s argued the court should evaluate their policies based on the actual impact on competition, under the so-called "rule of reason" test.
Alonso noted the plaintiffs passed on his offer to amend their complaint by adding a claim under the rule of reason test. But the judge also said the decision is guided by a unanimous 2021 U.S. Supreme Court opinion in NCAA v. Alston, in which the high court rejected the NCAA’s argument for a quick look analysis regarding antitrust claims over agreements limiting athlete compensation.
Some such restraints, the Supreme Court said, are “so obviously incapable of harming competition that they require little scrutiny.” But also there are some that “so obviously threaten to reduce output and raise prices that they might be condemned.” Like the NCAA dispute, Alonso said, the McDonald’s workers’ claims fall in between.
Alonso cited a report McDonald’s submitted from Justin McCrary, a Columbia University economics professor who detailed the history of the franchise’s growth since 1955 and specifically Ray Kroc’s brand restrictions. Alonso wrote that report indicates those restrictions may have actually been "pro-competitive, because they strengthen the quality of the brand, thereby encouraging additional franchisees to open outlets and increasing the output of the end product."
In that report, McCrary also described how the expense for management training within McDonald's structure fell primarily on franchisees. He said the restrictions protected franchisees from losing well-trained employees to locations that didn’t pay for the education and encouraged cooperation because prospective franchisees must complete their own training before signing agreements. Absent the restriction, Alonso summarized, “current franchisees would be reluctant to allow potential franchisees to train in their restaurants for fear they would use the opportunity to recruit employees.”
Alonso thus determined McDonald’s had offered enough evidence its policies promote competition that a quick look analysis is insufficient to proceed with class certification. He further said the motion for certification doesn’t adequately show all potential members faced identical restraints. He attributed that shortcoming to the allegations concerning corporately owned locations, noting the record doesn’t show those restaurants “compete with franchisees in every part of the United States.”
Whereas there are 14,000 McDonald’s locations, only 900 of 3,000 franchisees operated a restaurant near a corporately-owned location.
“The upshot of applying rule of reason analysis to this case is that the question of whether defendants engaged in an unreasonable restraint of trade is not a common question,” Alonso said. “It cannot be answered for all of the members of the proposed class with the same evidence, because not all of the plaintiffs sold their services in the same relevant market.”
Adding “it defies logic to suppose” all McDonald’s employees operate in the same labor market, Alonso said, there might be room to create subsets based on geography, but the complaint as constituted doesn’t present “a question that is common to a nationwide class.”
Alonso also reiterated the plaintiffs’ lawyers — which include McCune Wright Arevalo, of Ontario, Calif.; Lieff, Cabraser, Heimann & Berstein, of San Francisco; and Scott + Scott Attorneys, of New York and San Diego — erred by waving the chance to add a rule of reason claim.
“It is no surprise, then, that attorneys might take a shot at a nationwide-class jackpot (of which they might hope to collect a third, which is about $913 million) rather than propose a small, local class under the rule of reason,” Alonso wrote. “The reward to any given plaintiff would likely be quite similar whether he proceeded as part of a small, local class or a massive nationwide class. Only the lawyers had something to gain by foregoing a claim under the rule of reason, which makes one wonder whether the attorneys were looking out mostly for themselves when they chose not to amend to add a claim under the rule of reason.”
McDonald’s is defended by the Los Angeles firm of Gibson, Dunn & Crutcher and the Chicago firm of A&G Law.