A federal appeals panel has revived an antitrust lawsuit in which McDonald’s workers are suing the fast food giant over its no-poach hiring deals, litigation a federal judge once branded a potential “jackpot” nationwide class action.
Leinani Deslandes sued McDonald’s Corporation in Chicago in 2017, alleging the burger chain violated the federal Sherman Antitrust Act through “reducing wages and worsened working conditions” by barring workers who left on McDonald’s from working at another for at least six months and through a related policy inhibiting 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.
Alonso denied that motion in July 2021. While agreeing the proposed class definition easily met numerosity requirements, Alonso 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 its policies based on the actual impact on competition, under the so-called “rule of reason” test.
U.S. Seventh Circuit Court of Appeals Judge Frank Easterbrook
The women challenged the issue before the U.S. Seventh Circuit Court of Appeals. Judge Frank Easterbrook wrote the panel’s opinion, published Aug. 25; Judges Kenneth Ripple and Diane Wood concurred. Ripple wrote a special concurrence.
According to Easterbook, Alonso decided the workers’ complaint was “deficient under the Rule of Reason because it does not allege that McDonald’s and its franchises collectively have power in the market for restaurant workers’ labor. Market power is essential to any claim under the Rule of Reason.”
Alonso essentially determined McDonald's workers aren't limited only to working at McDonald's if they wish to continue working in the fast food industry. The employment market, he said, is not limited to just one chain, so McDonald's "no-poach" arrangements may not amount to an antitrust violation.
Further, Alonso determined the no-poach agreements actually may open more job opportunities, by making a McDonald's franchise more economically viable in more places.
Alonso gave the women leave to file an amended complaint incorporating market power allegations, but they declined to do so, after which he dismissed their complaint without prejudice.
In arguments following that decision, the U.S. Justice Department under Democrat President Joe Biden weighed in on the side of the plaintiffs, asserting Alonso had misread the case and the law.
Before the Seventh Circuit, the workers argued they never forfeited the opportunity to make a market power case, calling it “too obvious to need allegations and proof,” Easterbrook wrote.
“But that line of argument depends on treating ‘workers at McDonald’s’ as an economic market,” Easterbrook wrote. “That’s not sound. People who work at McDonald’s one week can work at Wendy’s the next, and the reverse. People entering the labor market can choose where to go — and fast-food restaurants are only one of many options. If wages are too low at one chain, people can choose other employers. The mobility of workers — both from one employer to another and from one neighborhood to another — makes it impossible to treat employees at a single chain as a market.”
Alonso noted there are up to 50 fast food restaurants within three miles of Deslandes’ home and 517 within 10 miles. The panel said Alsonso wasn’t wrong to determine fast food employment isn’t a single market. However, Easterbook continued, Alosno was too quick to jettison another potential legal theory under antitrust claims.
“The complaint alleges a horizontal restraint, and market power is not essential to antitrust claims involving naked agreements among competitors,” Easterbrook wrote. Not all horizontal agreements are illegal, he continued, but although the anti-poach clause was included in franchise agreements as a way to bolster overall success, that approach supposes potential benefits to customers justifies suppressing wages.
“Is there some reason to think that a no-poach clause promotes the production of restaurant food?” Easterbrook wrote. “Maybe it just takes advantage of workers’ sunk costs and helps each business’s bottom line, without adding to output.”
Deslandes alleged she tried to leverage her corporate training — completed while earning lower wages — by seeking an open position with better pay at a different McDonald’s, but said the policy specifically kept workers from making such advancements.
“So what was the no-poach clause doing?” Easterbrook wrote. “Was it protecting franchises’ investments in training, or was it allowing them to appropriate the value of workers’ own investments? That question can’t be answered by observing that any given franchise contract, viewed by itself, expands the output of food.”
The panel noted the clause was nationwide in scope; that the no compete clause wasn’t linked to estimates of the time a McDonald’s franchise would need to recover training investments; and the panel said those and other questions not only “require careful economic analysis” but represent issues inherent to McDonald’s defense of the clause as ancillary to business operations, which is not something the workers needed to have in their complaint to survive dismissal.
With his judgment vacated, Easterbrook wrote, Alonso “may think it wise to reconsider” class certification on remand.
In his concurrence, Ripple noted that as the case resumes in district court, “the defendants bear the burden of establishing that the no-poaching clause in the franchise agreement qualifies as an ancillary restraint.”
However, he added, the majority opinion isn’t an assessment of the future economic analysis or other potential legal strategies, nor did he consider it an undermining of well-established antritrust law precedent with regard to legitimate cooperative practices.
The plaintiffs’ lawyers include attorneys from the firms of McCune Wright Arevalo, of Ontario, California; Lieff, Cabraser, Heimann & Berstein, of San Francisco; and Scott + Scott Attorneys, of New York and San Diego.
McDonald’s is defended by the Los Angeles firm of Gibson, Dunn & Crutcher and the Chicago firm of A&G Law.