L&E Scholars Argue that ‘No-Poach’ Clause Isn’t Inherently Anti-Competitive
PORTLAND, Ore. (Jan. 12, 2023) – A new amicus brief filed with the 7th U.S. Circuit Court of Appeals by the International Center for Law & Economics (ICLE) and 20 distinguished scholars of law & economics highlights the importance of market definition in labor markets, as well as the proper antitrust approach to franchise-agreement terms.
The case in question, Deslandes & Turner v. McDonald’s USA LLC, involved certain “no-poach” agreements between McDonald’s and its individual franchisees that were in effect prior to 2017. The plaintiffs argued that these agreements amounted to horizontal restraints that harmed competition and workers across the nation in what was, in essence, a McDonald’s-specific labor market.
The amici disputed that the plaintiffs’ had defined a relevant market. They note that McDonald’s franchises in one state do not typically compete with franchises in other states for the same workers, but they do compete for labor in local markets with other fast-food restaurants, as well as with hundreds of other employers who seek low-wage labor. There is therefore no evidence that McDonald’s wields market power in the relevant labor markets.
“Plaintiffs’ proposed market is both implausible and economically unsound,” the signatories write. “Antitrust markets typically have two dimensions: (1) a geographic market and (2) a product or services market. Plaintiffs’ single-brand, nationwide market fails along both dimensions.”
To argue that the no-poach clause constituted a horizontal restraint, the plaintiffs note that McDonald’s has a few corporate-owned restaurants that are horizontal competitors with independently owned franchisees. But as the brief points out, in 20 states and in many local markets, there are no corporate-owned restaurants at all, undermining the argument that there could be a horizontal restraint at the national level.
They argue instead that the agreements are vertical restraints that should be subject to case-by-case, rule-of-reason analysis. While some no-poach agreements may indeed be suspect, the kinds of intrabrand restraints McDonald’s employed do not obviously harm competition.
“McDonald’s vigorously competes with numerous firms in both labor markets and the output market,” the amici write. “Its competitive efforts have included various intrabrand restraints among its franchisees that foster a strong, consistent brand identity, along with shared marketing and product development. That successful brand identity is what attracts individual franchisees to open and operate McDonald’s restaurants.”
Signatories to the brief included ICLE President Geoffrey A. Manne, Director of Competition Policy Dirk Auer, Director of Law & Economics Programs Gus Hurwitz, Senior Scholar Daniel Gilman, Academic Advisor Richard A. Epstein, and Academic Affiliates Jonathan M. Barnett, Luke Froeb, Stan Liebowitz, Scott Masten, Alan Meese, Paul Rubin and Michael Sykuta.
Other signatories included James C. Cooper, Tad Lipsky, and John Yun of George Mason University’s Scalia School of Law; former Federal Communications Commission member Harold Furchtgott-Roth; Janice Hauge of the University of North Texas; Daniel A. Lyons of Boston College Law School; Gregory J. Werden, formerly of the U.S. Justice Department’s Antitrust Division; and Nobel laureate Vernon L. Smith of Chapman University.
The full brief can be downloaded here. To schedule an interview about the brief with ICLE scholars, contact Elizabeth Lincicome at [email protected].