A Jackson Hewitt office. Photo: Matthew Schaefer/Shutterstock

Jackson Hewitt Tax Service is battling four lawsuits that accuse it of suppressing wages and violating federal antitrust law with its no-poaching rule for tax preparers.

Jackson Hewitt operates some 6,000 offices nationwide, and each franchise operator is restricted from hiring or soliciting employees from another Jackson Hewitt office. The suits, brought on behalf of current and former Jackson Hewitt employees, call that rule “a naked restraint of competition and a per se violation of the antitrust laws.”

The suits were transferred to the District of New Jersey on March 28 from the Eastern District of Virginia at the request of Jackson Hewitt, which is headquartered in Jersey City.

The suits seek a declaration that Jackson Hewitt's no-poaching rule violates the Sherman Act, and seeks an award of treble damages, punitive damages and attorney fees. They also seek a permanent injunction and restraint from establishing similar restrictions on competition. In addition, the suits seek a court-approved notice program, at Jackson Hewitt's expense, in order to reach class members.

“Basic economic principles inform that a reduction in the pool of potential employers tends to lower the bargaining power of employees and depress wages, especially if the lost opportunities were superior to their current employment,” the plaintiffs said in court documents.

Court documents, citing an article in Franchise Times, state that any Jackson Hewitt franchise that hires an employee from the company or another franchisee was subject to a fee equivalent to three times that employee's salary. Duane Mora, vice president of franchise relations and development for Jackson Hewitt, said in the article that the fee “is designed to protect existing franchisees from having their best tax preparers hired away from them.”

The company deleted that fee after the attorneys general of 10 states and the District of Columbia announced in July 2018 that they were investigating anti-competitive hiring and recruiting practices at large franchise companies. Jackson Hewitt revised its policies to eliminate the triple-salary fee but a no-poach clause allowing it to revoke a franchise remains in effect.

U.S. District Judge Robert Doumar of the Eastern District of Virginia granted Jackson Hewitt's motion to transfer the four cases to New Jersey on March 28. The company's lawyers, from Quarles & Brady in Washington, D.C., and Ansa Assuncao in Matawan, New Jersey, argued that the litigation should be moved because the vast majority of witnesses, relevant documents and document custodians were located in New Jersey. The plaintiffs live in Illinois, Maine, Michigan, Mississippi, Pennsylvania and Virginia.

The plaintiffs disagreed, claiming that the Virginia court was a proper venue under either the Clayton Act or the law on venues. Doumar ruled that Virginia was not a suitable venue under the Clayton Act.

The plaintiffs showed that Jackson Hewitt Inc. transacts business in the Eastern District of Virginia, where it has numerous franchise locations, but failed to demonstrate that defendants Jackson Hewitt Tax Service Inc. and Tax Services of America transact business in that district, Doumar said. Doumar also found that the Eastern District of Virginia was not a proper site for the litigation under the general venue law because Jackson Hewitt Tax Service Inc., which is a named defendant in all four cases, is not considered to “reside” in Virginia for purposes of establishing venue.

Litigation activity over franchise companies with no-poach policies saw an uptick around the time of the  attorneys general announcement, and the Department of Justices has submitted statements of interest in some cases. The Justice Department issued a filing on March 7 in three such suits in the Eastern District of Washington, which challenge no-poach policies in franchises of Auntie Anne's, Arby's and Carl's Jr. eateries. That memo provides a framework for evaluating whether the plaintiffs have stated a claim that the alleged no-poach agreements violate the Sherman Act.

Scott McIntosh of Quarles & Brady said Jackson Hewitt does not comment on pending litigation. James Coons of Ansa Assuncao in Matawan, who is local counsel for Jackson Hewitt, also declined to comment.

Lawyers for the plaintiffs, including Conrad Shumadine of Willcox & Savage in Norfolk, Virginia, Douglas Millen of Freed Kanner London & MIllen in Bannocktown, Illinois, and Joseph Saveri of Lieff, Cabraser, Heiman & Bernstein in San Francisco, did not return calls about the litigation.