The United States District Court for the Southern District of Florida erred when it dismissed a suit against a group of Burger King franchisees that alleged the restaurants illegally maintained no-hire and no-poach agreements. The workers claimed Burger King’s franchisee agreements prevented them from obtaining employment at other franchise restaurants. See Arrington v. Burger King Worldwide, Inc., 448 F.Supp.3d 1322, 1326 (S.D. Fla., 2020).
From 2010-2018, franchisees joining the Miami Burger King system were required to execute a standard franchise agreement. The agreement stated that “Neither [Burger King] nor Franchisee will attempt, directly or indirectly, to entice or induce… any employee of the other … to leave such employment or employ such employee within six (6) months after his or her termination.” Id. at 1326, 1327.
The workers alleged the agreement resulted in depressed wages, decreased benefits, and reduced job flexibility for previous and current Burger King employees. They also alleged the agreements were an unreasonable restraint on trade, in violation of the Sherman Antitrust Act of 1890. The District Court found Burger King unable to violate the Sherman Act, citing that each of its franchisees constituted a single economic enterprise which was unable to participate in a concerted activity.
The Eleventh Circuit reversed the lower court’s decision, comparing the network of Burger King franchisees to the National Football League (“NFL”), which faced a similar suit. In comparison, the Eleventh Circuit said, “Like the 32 [NFL] teams … Burger King and its separate and independent franchise restaurants compete against each other — in this case, for employees”. Arrington v. Burger King Worldwide, Inc., 47 F.4th 1247, 1250 (11th Cir. 2022). The Court stated the workers’ complaint against Burger King “plausibly alleged” that the no-hire agreement qualified as concerted activity under the Sherman Act, particularly because “each franchisee [was] an independent center of decision making as to hiring or employment agreements.” Id. at 1255, 1256.
The Eleventh Circuit remanded the case to the District Court for further proceedings. Although the Eleventh Circuit declined to decide whether the agreement was an illegal restraint of trade, it signals uncertainty in this area. Franchisees should carefully scrutinize their franchise agreements to ensure the no-hire clauses are narrowly tailored and not a restraint on trade, given that other franchisees will not likely be considered part of one single enterprise.