The Franchise Memorandum

In a precedent-setting departure from decisions in other courts, the Eastern District of Michigan has become the first court to dismiss a putative antitrust class action challenging an anti-poaching provision in a franchise agreement under Section 1 of the Sherman Act. Ogden v. Little Caesar Enters., Inc., 2019 WL 3425266 (E.D. Mich. July 29, 2019). According to the complaint, plaintiff Christopher Ogden was employed by a Little Caesar franchisee in Tennessee. The Little Caesar franchise agreement prohibited the hiring of managerial employees of other franchisees without the consent of the original employer. Ogden began working for the franchisee as a crew member before being promoted to assistant and then general manager. He subsequently left his employment to take a lower-paying job at Taco Bell. At no point did he seek employment with any other Little Caesar franchisee, nor was he ever aware there might be any limitation on his doing so.

In dismissing Ogden’s complaint, the court first rejected Ogden’s argument that it should defer a decision as to the standard applicable to Sherman Act claims until later in the proceeding. The court noted that Ogden had failed to allege the necessary elements of a rule of reason claim, which is the default standard under Section 1 of the Sherman Act. Because of this tactical omission, it was necessary to consider whether Ogden had stated a claim of per se illegality or a claim under the “quick-look” doctrine. The court held that per se analysis is appropriate only where a restraint “clearly and unquestionably falls within one of the handful of categories that have been collectively deemed per se anticompetitive.” In the employment context, the Sixth Circuit has applied per se analysis only to agreements to fix wages or divide the labor market into exclusive territories. Because the anti-poaching provision fit into neither of these categories, per se analysis was inappropriate. Next, the court rejected Ogden’s arguments for applying the “quick-look” approach, distinguishing his allegations from those advanced in anti-poaching lawsuits against McDonald’s and Jimmy John’s that survived motions to dismiss. Among other distinctions, Ogden’s failure to allege that another Little Caesar franchisee would hire him, or offered him a job, or even that he sought employment with another Little Caesar franchisee, undercut Ogden’s argument that he had been subjected to an “onerous [or] directly enforced” restraint. Finally, the court concluded that Ogden’s case also should be dismissed because he failed to plead any antitrust injury. The court noted Ogden’s admission that he was never aware of the anti-poaching provision during the course of his employment and the fact that he was never subjected to any employment action as a result of the provision. Thus, Ogden failed to “offer[] any facts to show that the agreement precipitated any specific wage or opportunity loss to him.”

Little Caesar was represented in the Ogden litigation by Gray Plant Mooty.