Antitrust Law Daily Restraint of trade claims over Papa John’s No-Hire clause for franchisees go forward
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Tuesday, October 22, 2019

Restraint of trade claims over Papa John’s No-Hire clause for franchisees go forward

By Nicole D. Prysby, J.D.

The plaintiffs adequately pleaded the existence of horizontal agreements, and antitrust injury in the form of depressed wages and employment opportunities.

Restraint of trade claims brought by employees of Papa John’s International, Inc. and Papa John’s USA, Inc., over a No-Hire provision (also called a No-Poach clause) in all franchise agreements would go forward, held the federal district court in Louisville. The plaintiffs plausibly pleaded that the defendants orchestrated an agreement between and among Papa John’s restaurant franchisees, pursuant to which the franchisees agreed not to hire or solicit each other’s employees or Papa John’s employees. The plaintiffs also sufficiently demonstrated that the statute of limitations should be tolled, based on fraudulent concealment of the No-Hire clause. Class claims also would go forward based on allegations of a common cause of injury (the existence of the agreement) and common injury (depressed wages and benefits and lack of employment opportunities). One employee will be required to arbitrate her claims (In Re Papa John’s Employee and Franchisee Employee Antitrust Litigation, October 21, 2019, McKinley, J.).

No-Hire provision. Papa John’s International, Inc. enters into a standard franchise agreement with each new franchise owner. The plaintiffs claimed that every franchisee executing a franchise agreement from 2010-2017 agreed to a No-Hire provision, prohibiting it from employing any person employed by Papa John’s or any Papa John franchisee until one year after the franchise agreement was terminated. The plaintiffs claimed that the defendants used the franchise agreements to orchestrate a conspiracy among their franchisees to not compete for labor among themselves or the corporate-owned stores. More specifically, they maintained that the No-Poach clause acts as a horizontal restraint of trade among competitors in the labor market and is a per se violation of the Sherman Act.

One plaintiff must arbitrate claims. Papa John’s argued that the claim of one plaintiff should go to arbitration, because she had signed an arbitration agreement during her hiring process. The court agreed. The agreement stated that the employee agrees to arbitrate all claims arising out of her employment with Papa John’s, including any violation of federal, state, or other law. The court rejected the employee’s argument that her antitrust claim arises not out of her employment, but out of the concerted refusal of any Papa John’s franchisee to consider her for a position pursuant to the No-Hire Agreement.

Sherman Act claims go forward. The court concluded that the plaintiffs plausibly pleaded their restraint of trade claims. They pleaded sufficient circumstantial evidence of an agreement between economic entities, through allegations that the No-Hire clause is against the franchisees’ self-interests, and that they had numerous opportunities to conspire at annual meetings. The court declined to decide which rule of analysis would apply to the restraint of trade claim, but concluded that it could proceed under a per se analysis because the No-Hire provision restrains horizontal competitors for labor. It could also proceed under a quick-look approach or a rule of reason approach.

Although they did not define a relevant market, when dealing with a horizontal restraint that has an adverse effect on competition, a plaintiff need not define the relevant market, and here the plaintiffs set forth factual allegations sufficient from which the court could plausibly conclude that the agreements at issue are horizontal. The plaintiffs also sufficiently pleaded antitrust injury: depressed wages and diminished employment opportunities.

The court also concluded that the statute of limitations should be tolled because the defendants fraudulently concealed the existence of the No-Hire Agreement. The defendants publicly represented that each franchisee had complete control over all hiring practices and those false statements fostered a misimpression on the plaintiffs’ behalf that the defendants had no inter-franchise constraints on their hiring and employment practices. The franchise agreement, while publicly available, was only available through third-party websites such as California’s Department of Business Oversight. Based on the obscurity of the publication of the franchise agreements, the further obscurity of the No-Poach provision within the franchise agreements, and the fact that the plaintiffs had no reason to look for or read their employer’s franchise agreement, a reasonable person’s interest would not be piqued.

The court rejected Papa John’s argument that the class allegations should fail because of a lack of commonality or predominance. The plaintiffs demonstrated commonality by alleging that the No-Hire clause applies to all Papa John’s employee. Predominance was met because there was a common cause of injury—the No-Hire provision of the franchise agreement. That common cause resulted in similar types of harm—depressed wages and benefits and lack of employment opportunities.

The case is No. 3:18-cv-00825-JHM-RSE.

Attorneys: Anne B. Shaver (Lieff, Cabraser, Heimann & Bernstein, LLP) for Jay Houston. Ashley K. Laken (Seyfarth Shaw LLP) and Buddy J. Vancleave (Quintairos, Prieto, Wood & Boyer, PA) for Papa John's International, Inc. and Papa John's USA, Inc.

Companies: Papa John's International, Inc.; Papa John's USA, Inc.

MainStory: TopStory Antitrust FranchisingDistribution KentuckyNews

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