Attorneys general in 10 states and the District of Columbia are launching an investigation of contracts at fast-food chains that prevent their workers from switching franchises, targeting a practice some economists say drags down wages for millions of Americans.
“No-poach agreements unfairly limit the freedom of fast-food and other low-wage workers to seek promotions and earn a better living,” said Massachusetts Attorney General Maura Healey (D), whose office is leading the probe.
No-poaching clauses have come under increasing scrutiny by Democrats and some policy experts over the past several years as wage growth remains a persistent weakness for an otherwise strong and growing economy.
Economists say barring employees from switching between chain locations unfairly prevents them from bargaining for higher wages, while businesses maintain they are necessary for local firms to recoup the costs of their investments in personnel.
“Many workers only learn these agreements exist when they are denied the chance to advance to a better job, earn more money or obtain family-friendly schedule options” at a different franchise location, Pennsylvania Attorney General Josh Shapiro said.
Sens. Cory Booker (D-N.J.) and Elizabeth Warren (D-Mass.) said in March that they would introduce legislation to make no-poaching agreements illegal, calling them an “anti-competitive” practice. A Booker policy aide estimated 70,000 fast-food restaurants would be affected by the bill, which has been dead-on-arrival in the Republican Congress.
The U.S. Justice Department's antitrust division has also opened an inquiry into the practice. A letter to be sent by the state attorneys general asks the fast-food companies for a range of information about no-poaching, including which employees have been subject to no-poach clauses and whether the workers were told of the restrictions on their job mobility.
About 80 percent of fast-food workers are constricted by no-poaching clauses, according to Healey's office. The other fast-food chains targeted by the states' investigation are Arby's, Five Guys, Little Caesars and Popeyes Louisiana Kitchen.
Industry advocates have maintained the practice is important for protecting their investments.
“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,” Matthew Haller, a spokesman for the International Franchise Association, said when Booker's legislation was introduced.
The efforts to tamp down on no-poach clauses also reflect concerns about the role of “monopsony” power — a monopoly held by a purchaser or employer, rather than by a seller — in restraining wages. Paychecks for most American workers have stagnated despite low unemployment and high economic growth, leading some economists to blame weaker union rights and other constraints on worker power.
Fast-food employees often sign contracts not knowing these provisions prevent them from working at their chain's other locations.
“By limiting workers’ outside options, a no-poaching agreement reduces worker bargaining power,” Princeton University economists Alan B. Krueger and Orley Ashenfelter said in a 2017 research paper cited by the attorneys general. " . . . It might help explain a recent puzzle in the U.S. job market: unemployment has reached a 16-year low and job openings are at an all-time high, yet wage growth has remained surprisingly sluggish.”
The practice is not limited to fast-food chains. Jiffy Lube, H&R Block and Anytime Fitness are among the companies that have had no-poaching clauses in their franchisee contracts, according to Krueger and Ashenfelter.
The states said they will ask for information and documents from the firms about their use of the practice. Along with Massachusetts, the group includes attorneys general in California, the District, Illinois, Maryland, Minnesota, New Jersey, New York, Oregon, Pennsylvania and Rhode Island.