Attorneys General Keep Targeting National Franchises over No-Poach Provisions
Earlier this month Washington state Attorney General Bob Ferguson announced that seven more corporate chains have eliminated employee no-poach practices nationwide, raising to 57 the number of chains that have signed such agreements with Ferguson over the past two years.
February 27, 2019 at 04:46 PM
4 minute read
Earlier this month Washington state Attorney General Bob Ferguson announced that seven more corporate chains have eliminated employee no-poach practices nationwide, raising to 57 the number of chains that have signed such agreements with Ferguson over the past two years.
According to Ferguson's figures, his agreements have lifted the provisions blocking employee moves in over 100,000 locations across the country. He also is expanding beyond fast food franchises into other areas, obtaining similar agreements from gyms like Planet Fitness and stores like Circle K. His office did not immediately respond to a request for comment.
Ferguson's not alone in pursuing the franchise companies for no-poaching clauses. Some 11 state attorneys general last July wrote letters to eight restaurant chains about their contract provisions. The 11 are Democrats elected mostly in the Northeast and West.
No-poach clauses appear in franchise agreements between owners of franchises and their corporate headquarters. The clauses prohibit employees from moving among stores in the same chain, a practice that some economists say suppresses competition for workers and stagnates wages, especially for low-income earners.
Bernard Nash, co-chair of Cozen O'Connor's state attorney general practice in Washington, D.C., said Wednesday the no-poach practices are the “latest issue du jour” for activist attorneys general who are applying state consumer protection and antitrust laws “expansively and creatively” where they believe the Trump administration is failing to act on the federal level to protect workers.
Fellow Cozen O'Connor co-chair Lori Kalani said the move started in 2015 when the New York attorney general sent letters to retailers about unpredictable work schedules and obtained agreements that the retailers would change their policies. “And this [no-poach] is yet another area where AGs feel they can improve the labor and employment situation of low paid, lower skilled workers,” Kalani said.
But not everyone thinks Ferguson is acting only in the interest of workers.
John Gelson, general counsel of the national restaurant chain Jersey Mike's Franchise Systems Inc. in New Jersey, suggested some political posturing is also at play.
Ferguson sued Jersey Mike's last October when the company declined to sign an agreement—the only company the state has sued.
Gelson told Corporate Counsel the company refused to sign the agreement because last April, well before Ferguson's approach, it had decided to eliminate the clauses from its contracts. He said he notified current franchisees across the country not to enforce the provision and has not included it in any new franchise documents.
“When they came to us later, we said we are not signing something promising to do what we've already done,” Gelson said. “We won't be part of your press release and parade of people who have signed your agreement.”
In fact, Gelson said when U.S. Sen. Cory Booker of New Jersey introduced a bill to eliminate no-poaching provisions nationally, he told Jersey Mike's he would like to give it an accommodation for being out in front of the issue.
“In the seven years I've been general counsel of Jersey Mike's, this is the only time we have been sued,” Gelson said. “I've been practicing law 37 years and I have no idea what we are fighting about, except this guy wants his name in the newspaper again or something.”
Ferguson has acknowledged that Jersey Mike's previously took action on its own, but he wants more. He has argued that if the company can voluntarily decide not to enforce the provision or not to include them in future contracts, then it can change those decisions at any time. The attorney general has said he wants a binding legal agreement assuring it won't do that.
So far, Ferguson has won the first round, surviving a motion to dismiss the lawsuit Jan. 28 in King County Superior Court in Seattle.
“We thought we had a shot to dismiss,” Gelson said, “but it's tough to be in someone else's home court.”
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