Is your franchise system a “no poaching zone?”

Is your franchise system a “no poaching zone?”

by | Mar 29, 2019 | Blog, For Franchisees, For Franchisors

New York Times Reporter Rachel Adams recently wrote about a group of states attorneys general investigating whether some fast food franchisors were forbidding franchisees from hiring the employees of others in the same system. The attorneys general, including those from California, Massachusetts and New York, asked several large franchise companies to document whether their franchise agreements contained no-poach or no-hire clause.

Do you need to ask permission to hire another franchise’s employee?

Maybe. If your franchise agreement contains no-poach or no-hire conditions, you, as the franchisee, have likely agreed that you will not recruit or hire any person who is or was within a specified period of time, employed by the franchisor, any of its affiliates or by any of its franchisees without the relevant employer’s consent.

These no-poach or no-hire agreements frequently are included in the franchise agreement between the franchisor and franchisee. However, reports Adams, the franchisees’ employees most affected by these practices often are unaware these prohibitions exist.

No-hire is not a non-compete

No-hire/no-poach agreements differ from non-compete agreements which employees may sign as a condition of their employment. Non-compete agreements signal thee employee’s agreement not to work for a competitor. Unlike “no-poach” clauses, non-compete agreements require the conscious affirmation and acceptance by the employee of the terms outlined. They know what they’ve signed at the time they take the job. Not so with no-poach/no-hire agreements which are frequently only signed by the franchisee.

Of course, no-poach and no-hire agreements can benefit the employer/franchisees, particularly if they have invested time and money in training the employee. The employer of record may consider it unfair that a competitor franchisee in the same system might benefit from the investment they have made in developing that employee.

Employees, however, may find that these types of agreements unfairly limit their potential job opportunities.

No-hire/no-poach is a no-go

That was the outcome of the attorneys general inquiry. Shortly after receiving notice, CNN Money Reporter Jackie Wattles reported that “seven fast-food chains, including Arby’s, Cinnabon and McDonald’s agreed to end the so-called ‘no poaching’ rules that have prevented employees from moving from one franchise to another within the same restaurant chain.”

Do your franchise agreements prohibit poaching?

Check carefully now. If you are a franchisor, consider with care whether you want to prohibit poaching among your franchisees. Whatever you decide, ensure that your documents reflect your decision. If you are a franchisee, you may want to review your franchise agreement before hiring an employee experienced in the system.

Unclear on how to proceed? Speak with your franchise attorney. Or, if you have questions about your franchise documents, feel free to contact me, Julie Lusthaus at jl@lusthauslawpc.com  and let’s talk.

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