Antitrust Law Daily Certification denied in claim that McDonald’s anti-poaching policy violated Sherman Act
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Thursday, July 29, 2021

Certification denied in claim that McDonald’s anti-poaching policy violated Sherman Act

By Robert B. Barnett Jr., J.D.

The court refused class certification because common issues did not predominate and counsel was not necessarily representing the class’s best interests.

Class certification was denied to former McDonald’s employees in a suit alleging that McDonald’s violated 1 of the Sherman Act by restricting employee poaching between franchisees because (1) common issues would not predominate and (2) the proposed class counsel would not adequately represent the class’s interests, the federal district court in Chicago has ruled. Common issues would not predominate because some franchisees faced vertical restraints while others faced horizontal restraints, depending on location, and the relevant market would be local geographic areas, which varied by franchisee and raised questions that could not be answered by common evidence. Counsel would not adequately represent the class interests because the attorneys’ actions so far raised questions about whether they were more interested in their fees than in the class (Deslandes v. McDonald’s USA, LLC, July 28, 2021, Alonso, J.).

Background. Leinani Deslandes, a McDonald’s employee, was offered a higher paying job at another McDonald’s franchise, but she was unable to take the position because of the franchise agreement, which prevented franchisees from poaching employees who had worked at other McDonald’s franchises in the prior six months.

Deslandes sued McDonald’s USA, LLC, and its parent McDonald’s Corporation, asserting that the franchise agreement’s no-hire provision violated the Sherman Act, the Illinois Antitrust Act, and the Illinois Consumer Fraud and Deceptive Trade Practices Act by artificially suppressing wages. After McDonald’s motion to dismiss was denied, and discovery progressed, Deslandes filed a motion to certify a nationwide class of persons who were employed by a McDonald’s restaurant during a five-year period.

Predominance—proper analysis. Before it could rule on the predominance issue, the court had to first determine under Sherman Act rules which analysis would apply: per se or rule of reason. The court concluded that no-hire provisions in franchise agreements would not be analyzed under the per se analysis because some valid reasons existed for the provisions. For example, a franchisee is required to train its employees, which costs time and money. The training costs can run into the thousands of dollars. If the no-hire provision did not exist, new franchisees could be tempted to save themselves the training costs by poaching already-trained employees at other franchisees. Thus, for that and other reasons, whatever one may say about whether no-hire provisions in franchise agreements violated the Sherman Act, they did not qualify under the per se standard of analysis as obviously anti-competitive.

Quick look. Having concluded that the no-hire provisions would be evaluated under the rule of reason, the next step was to determine whether the no-hire provisions would be evaluated under the subset of the rule of reason called the quick-look test. According to the Seventh Circuit, the quick-look test can be used at either end of the rule of reason spectrum: to accept obvious violations or to reject those that are clearly not anticompetitive.

The former employee’s belief that the quick-look test was appropriate was based on her argument that the court had already approved the quick-look test for these facts. The court, however, explicitly rejected that interpretation, noting only that it had, during consideration of the motion to dismiss, agreed that the plaintiff had stated a claim that might be unlawful under the quick-look analysis, but also that it might not be at a later point. At that point, the court gave the former employee leave to amend to add a claim under the rule of reason, which the former employee declined to do. That decision would come back to haunt the former employee.

Since this case was filed, the Supreme Court, in NCCAA v. Alston, ruled that the quick-look analysis rarely applies. Most constraints evaluated under the rule of reason, the Court said, fall into "the great in-between" that exists between the two extremes that call for the quick-look analysis. The facts in this case, the court concluded after applying Alston, fall within that great in-between.

This was true, the court noted, for three reasons that all point to applying the rule of reason test: (1) no-hire provisions cannot always be condemned because no-hire provisions have pro-competitive effects, including the pro-competitive effects of the franchise arrangement itself, (2) franchisees who faced competition from franchisor-owned McDonald’s restaurants faced horizontal restraints while those who faced competition only from other franchisees faced vertical restraints, which would require different proofs and evidence, and (3) the relevant market, which must involve local geographies because McDonald’s employees are not recruited nationally, was never properly defined by the former employee. A relevant market properly defined would cause questions to be raised relevant only to that local area that could not be defined by common evidence.

As a result, the court concluded that the proposed class failed the predominance requirement.

Adequacy. The question of adequacy involved both whether the named plaintiffs fairly and adequately protected the interests of the class and whether the proposed class counsel fairly and adequately protected the class. The court chose to focus on the latter question.

The court noted that this case presented an odd twist because, "while plaintiffs cannot prevail as class, they could lose as one." The reason related back to the counsel’s strategic decision not to amend the complaint to add a claim under the rule of reason. They apparently were pinning their hopes on getting a nationwide class certified that would proceed under the quick-look analysis, which, as previously discussed, failed. The court noted, for example, that a damages expert placed the aggregate damages at $27.4 billion. The court said that the attorneys wanted nationwide certification under quick-look for a crack at their share of that huge potential award.

The reward given to any individual class member, however, would not likely vary whether he or she was part of a small, local class or a massive nationwide class. "Only the lawyers had something to gain by foregoing a claim under the rule of reason," the court said, "which makes one wonder whether the attorneys were looking out mostly for themselves when they chose not to amend to add a claim under the rule of reason." The court went on to add, "Perhaps these attorneys took a gamble, choosing not to pursue a rule-of-reason claim in the hopes of the huge reward of certifying a nationwide class under quick-look analysis." In any event, the court interpreted their decision as an indication that counsel was not adequately representing the class’s best interests.

As a result, the court concluded that the proposed class failed the adequacy requirement.

The court, therefore, denied the motion for class certification on grounds of predominance and adequacy. Henceforth, "[e]ach class member remains free to pursue his or her own claim."

The case is No. 1:17-cv-04857.

Attorneys: Anne B. Shaver (Lieff Cabraser Heimann & Bernstein, LLP) for Leinani Deslandes. David Jarrett Arp (Gibson Dunn & Crutcher LLP) for McDonald's USA, LLC and McDonald's Coporation.

Companies: McDonald's USA, LLC; McDonald's Corp.

MainStory: TopStory Antitrust FranchisingDistribution StateUnfairTradePractices IllinoisNews GCNNews

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