The Justice Department said a federal judge got the law wrong when he let McDonald's escape two class action lawsuits, which accused the fast food giant of violating federal antitrust law by imposing so-called "no poach" agreements among its franchise restaurant owners.
In a brief filed Nov. 9, the U.S. Department of Justice urged a Chicago appeals panel to determine the proper framework for deciding cases involving "no poach" agreements, or deals among employers in franchise settings not to hire or solicit each other's workers.
The DOJ's interest concerns class action suits brought in Chicago federal district court by Leinani Deslandes and Stephanie Turner against Chicago-based McDonald's.
Plaintiffs alleged McDonald's violated antitrust law by barring franchisees from vying for workers, saying the practice hinders competition.
Deslandes was a McDonald's employee in Florida, who wanted to move to a better paying job with another nearby McDonald's. However, she was prevented from doing so, because McDonald's made its franchise restaurants agree to not poach workers from other McDonald's restaurants without permission from the other restaurant. Turner's suit makes a similar claim. The two suits have been consolidated in court.
This no-poach provision was part of franchise agreements from at least 1973 to 2017, according to court papers. Plaintiffs alleged the provision deprived them of higher wages, which breached the U.S. Sherman Antitrust Act.
District Judge Jorge Alonso threw out the suits, determining the provision promoted competition rather than choked it. Alonso noted the "fact that McDonald's has managed to continue signing franchise agreements even after it stopped including the provision in 2017 suggests that the . . . provision was not necessary to encourage franchisees to sign."
Plaintiffs have now taken their cases to the U.S. Court of Appeals for the Seventh Circuit.
The DOJ, on behalf of the Federal Trade Commission, filed friend-of-the-court arguments last week that do not explicitly support either side, though the end result of its reasoning would lead to courts allowing the kind of antitrust class action sought by the plaintiffs. The DOJ noted it "enforces the Sherman Act against employers who enter into market-allocation agreements, including agreements not to hire, solicit, and/or otherwise compete for employees," and is interested in the "correct application" of antitrust law.
According to the DOJ, Judge Alonso incorrectly determined the provision eliminated intrabrand competition for workers, but promoted competition for McDonald's food products. The DOJ countered, "Competition to purchase employees' labor is not properly characterized as intrabrand."
The DOJ noted the U.S. Supreme Court has stated “intrabrand competition is the competition between the distributors wholesale or retail of the product of a particular manufacturer.”
In the DOJ's words, Alonso's apparent reasoning "conflates product and labor markets."
"Job opportunities are not a branded 'product of a particular manufacturer,' and competition among franchisees to purchase employees’ labor is not competition over distribution of a manufacturer’s branded product," the DOJ wrote.
The DOJ added: "Defendants are purchasers, not distributors, of employees’ services" and, to quote a 2021 Supreme Court ruling, "price-fixing labor is ordinarily a textbook antitrust problem."
The DOJ arguments were submitted by DOJ lawyers Peter Bozzo, Daniel Haar and Nikolai Levin.
McDonald's is defended by the Los Angeles firm of Gibson, Dunn & Crutcher.
Deslandes and Turner are represented by attorneys with the firms of Lieff, Cabraser, Heimann & Bernstein, of San Francisco, as well as by McCune Wright Arevalo Vercoski Kusel Weck Brandt, of Boston, Massachusetts, and Ontario, California.