Business & Tech

Elizabeth Warren takes aim at businesses that promise not to poach each other’s workers

Senator Elizabeth Warren’s bill would term franchise no-poaching clauses an ‘‘anti-competitive’’ practice, giving workers the ability to sue and the right to claim damages.
TASOS KATOPODIS/EPA/Shutterstock
Senator Elizabeth Warren’s bill would term franchise no-poaching clauses an ‘‘anti-competitive’’ practice, giving workers the ability to sue and the right to claim damages.

WASHINGTON — Say you work at a Jiffy Lube 30 miles from your house. You’re happy enough there, but when you see an opening at another Jiffy Lube that’s around the corner from where you live, you can’t resist applying. You think you’ve got a decent chance; after all, you’re already trained for the job. After you apply, however, you don’t hear anything back.

It’s possible you just weren’t the candidate they wanted. But it’s also possible that you were never even considered, as your local Jiffy Lube was barred from hiring you thanks to a ‘‘non-poaching’’ agreement it signed with the corporate headquarters. The non-poaching pacts vary, but generally they eliminate or limit franchise owners’ ability to hire workers from other locations within the franchise.

The agreements are common at fast food giants and other chains, such as Burger King and H & R Block, and they’re gaining prominence: Non-poaching clauses are now included in up to 56 percent of large franchises, up about 20 percent from two decades ago, according to a report published on Wednesday by two prominent economists.

Advertisement

Worker advocacy groups have long opposed such agreements, arguing they hurt employees’ leverage in negotiating raises and stifle worker pay. And now the agreements are drawing renewed scrutiny from Democratic lawmakers — as well as from President Trump’s Justice Department.

Get Talking Points in your inbox:
An afternoon recap of the day’s most important business news, delivered weekdays.
Thank you for signing up! Sign up for more newsletters here

Democratic Senators Elizabeth Warren of Massachusetts and Cory Booker of New Jersey on Thursday introduced the first legislation in Congress that would make these arrangements illegal. The bill would term these no-poaching clauses an ‘‘anti-competitive’’ practice, giving workers the ability to sue and the right to claim damages.

‘‘This is patently unfair and against the ideals of a so-called free market,’’ Booker said in an interview. ‘‘It’s anti-democratic and it’s hurting people.’’

Their bill reflects the rising concerns among some academics and on the Hill about the role of ‘‘monopsony’’ power — a monopoly held by a purchaser or employer, rather than by a seller — in restraining wages, a theory that has gotten increasing attention among Democratic policymakers since the 2016 election.

Industry advocates defended the practice of ‘‘noncompete’’ clauses, arguing companies need to protect the investments they make in personnel. ‘‘Franchising has generated more wealth and opportunities for employees to move up the income ladder than any other business model in our nation’s history,’’ said Matthew Haller, a spokesperson for the International Franchise Association, while also acknowledging that in some cases changes to the law may be appropriate. ‘‘Provisions in franchise agreements allow franchise owners to protect the significant financial investments they make to train employees the skills and methods necessary to deliver the product or service to customers.’’

Advertisement

The Justice Department is also reviewing the legality of these agreements, and it argues some violate federal antitrust law. Officials said in January that the agency plans on taking criminal actions against some companies with ‘‘no poaching agreements,’’ according to reports in multiple news outlets. Makan Delrahim, the DOJ’s assistant attorney general for the antitrust division, told reporters that the DOJ has been ‘‘very active’’ in reviewing potential criminal actions against employers whose no-poaching or no-compete clauses violate federal antitrust law, noting that companies had already been warned about the practice in a 2016 DOJ letter, Bloomberg Law reported.

So far, however, attempts to push back on the agreements in court have had little success. Courts have dismissed a number of class-action lawsuits against these arrangements, and federal regulators have few resources to try cracking down on them, said Alan Krueger, of Princeton, and Eric Posner, of the University of Chicago, in their new report.

That’s created the opening for the Booker-Warren bill. The legislation, likely dead-on-arrival in a Republican Congress, would force upward of 70,000 fast food restaurants alone to eliminate the clauses, according to a policy aide for Booker. The agreements appear most prevalent in the fast food industry, where about 40 different companies have those provisions. Eleven major fitness chains, 14 lodging chains and 11 retail giants also have similar arrangements, Krueger and another Princeton researcher, Orley Ashenfelter, said in a 2017 study.

State policy may also another avenue for freeing workers from poaching legislation. Maine, Maryland, Massachusetts, and New Hampshire are ‘‘currently considering’’ legislation restricting noncompete clauses, while in 2016 Illinois banned noncompetes for those earning under $13 an hour, according to Krueger and Posner. The vast majority of states have no such bans.