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 because 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 like Burger King and chains like Jiffy Lube and H&R Block in other industries, 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 Wednesday by two prominent economists.
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.
Democratic Sens. Cory Booker (N.J.) and Elizabeth Warren (Mass.) on Thursday introduced legislation that would make these arrangements illegal, calling them an “anti-competitive” practice and 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 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. The theory has gotten increasing attention among Democratic policymakers since the 2016 election.
Industry advocates defended the practice of what they call “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 spokesman 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.”
The Justice Department is also reviewing the legality of these agreements, and it argues that some violate federal antitrust law. Officials said in January that the agency plans to make criminal complaints against some companies with “no-poaching agreements,” according to reports in multiple news outlets. Makan Delrahim, assistant attorney general for the antitrust division, told reporters that the agency has been “very active” in reviewing potential criminal cases against employers whose clauses violate federal law, noting that companies had been warned about the practice in a 2016 letter, Bloomberg Law reported.
So far, however, attempts to push back on the agreements in court have had little success. Judges have dismissed a number of class-action lawsuits against these arrangements, and federal regulators have few resources to crack down on them, Alan Krueger of Princeton University and Eric Posner of the University of Chicago said in their report.
That has created the opening for the Booker-Warren bill. The legislation, probably dead on arrival in a Republican Congress, would force the clauses to be eliminated for upward of 70,000 fast-food restaurants alone, according to a policy aide for Booker. That’s the industry where the agreements appear most prevalent, with about 40 companies using them. 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 provide another avenue for freeing workers from non-poaching legislation. Maine, Maryland, Massachusetts and New Hampshire are “currently considering” legislation restricting the clauses, while Illinois banned them in 2016 for workers earning less than $13 an hour, according to Krueger and Posner. But the vast majority of states have no such bans.
Experts say it's hard to pinpoint exactly how much of an impact the rise of “buyer's monopolies” have on wages but argue that it may explain why take-home income remains relatively flat even amid low unemployment, a strong stock market and rising business investment in the American economy. One in 5 workers with a high school education or less signed “noncompete” agreements of some kind, the researchers find. Since the 2016 election, this idea has gained currency in the Democratic Party, helping to shape the party's Better Deal legislative package, which incorporated proposals to bust up monopolies; in the campaigns of a number of House Democratic candidates running on antimonopoly messages; and in this latest effort against “no-poaching” clauses.
““The system is rigged against hard working people, and one way is through 'no poaching' agreements, which allow powerful corporations to keep their employees’ wages low and limit workers’ alternative employment option,” Warren said.
Proposals are likely to emerge banning certain forms of noncompete clauses for workers who want to change companies. But Warren and Booker are starting with what experts identified as perhaps the simplest example of a corporate practice that makes the market less competitive.
“No-poaching is the lowest-hanging fruit, in terms of labor market antitrust violations to go after,” said Marshall Steinbaum, an economist at the Roosevelt Institute, a left-of-center think tank.