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The Franchise Memorandum

Franchising Could be Affected by Announced Federal Focus on WageCollusion, Noncompetes, and “Other Anticompetitive Practices”
Posted in Antitrust

The White House last month announced a broad series of new administrative steps “calling for actions that enhance competition” in employment practices. One aspect of the new antitrust focus on employment matters may intentionally or unintentionally also affect franchise agreements. That possibility involves terms in many franchise agreements that prohibit franchisees from soliciting employees away from other franchisees or from the franchisor itself. Under the new emphasis, such “anti-poaching” agreements could be deemed illegal—or at least subject to investigations or litigation. The new “Antitrust Guidance for HR Professionals” jointly issued by the FTC and the United States Department of Justice, instructs human resources professionals how to spot and report collusion among employers that may violate antitrust law, such as wage collusion or no-poaching agreements. The indication is that going forward, the DOJ will criminally investigate allegations that employers have agreed amongst themselves on employee compensation or not to solicit or hire one another’s employees. Whether this same theory will be applied to franchise agreement anti-poaching provisions remains to be seen. Although leadership of the DOJ will change under the Trump administration, no immediate changes are expected in the direction of the FTC.

Although these announcements do not include specific new prohibitions and generally do not require immediate action, they do raise the possibility of near-term actions for which employers and franchisors should be watchful. For example, in formulating new versions of franchise agreements for 2017 and beyond, franchisors should consider whether to remove anti-poaching language that may exist.

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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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