The Federal Trade Commission joined the Department of Justice in filing an amicus brief with the U.S. Court of Appeals for the Seventh Circuit in the cases of Deslandes v. McDonald’s USA, LLC and Turner v. McDonald’s USA, LLC. The brief argues that the antitrust laws protect competition for workers. It also asks the appeals court to hold that a lower court applied the wrong test in a decision that dismissed workers’ allegations that restrictions in McDonald’s franchise agreements banning store owners from hiring workers away from other McDonald’s stores violated U.S. antitrust law.
The brief argues that horizontal no-hire restrictions are per se illegal unless the employer can show that the provision is “ancillary” to the franchise agreement itself, which in this case depends on whether the hiring restriction is “reasonably necessary” to a pro-competitive benefit of the franchise agreements. The lower court misapplied that law when it dismissed these cases, the brief asserts.
The amicus brief notes that as of May 2021, nearly 3.1 million workers served as fast food and counter workers, making average hourly wages of just $12.53 and mean annual wages of $26,060, according to the Bureau of Labor Statistics. These workers stand to benefit greatly from fair competition among employers, free of illegal hiring restrictions, but collusion between employers can depress their wages. Until 2017, the standard language in McDonald’s franchise agreement prohibited the owner of one franchise from soliciting or hiring employees who worked for another McDonald’s franchise.
Two former McDonald’s employees who claimed they would have earned higher wages but for the hiring restriction sued on their own behalf and a class of similar employees. The lower court dismissed the cases, holding that the no-hire provision was not illegal per se and could not be assessed under a “quick look” legal analysis. Instead, the court concluded, plaintiffs were required to show that the restriction was unlawful under a detailed “rule of reason” antitrust analysis, which the plaintiffs could not do.
The FTC and Justice Department argued to the appeals court that the lower court’s legal analysis was incorrect. Agreements among competing employers to refrain from soliciting each other’s employees are per se illegal because they amount to employee “allocation” that eliminates competition by limiting employers’ ability to compete for employees not allocated to them. Allocated employees cannot benefit from competition that would result in better wages and working conditions.
McDonald’s could justify the restriction only by proving that it was “ancillary” to the franchise agreements, and the brief argues that the lower court erred in its analysis of that test.
The Commission vote to file the amicus brief with the Justice Department was 3-1, with Commissioner Christine S. Wilson voting no.