Franchisor 101: Open Season for Poaching in Washington

Lewitt Hackman [co-author: Caitlyn Dillon]

Washington State’s Attorney General settled a case against sandwich franchisor, Jersey Mike’s, over antipoaching provisions in its franchise agreements. Since 2018, Washington State has made agreements with more than 60 franchisors to remove similar provisions from their franchise agreements.

In some franchise systems, antipoaching provisions restrict franchisees from soliciting or hiring employees of the franchisor or another franchisee of the system. An effect of these provisions is to limit employees of the franchisor or franchisee from obtaining employment at another location in the system. This can prevent employees from getting better pay or benefits, or enjoying more convenience, or just working for another owner they like better and can stagnate employment opportunities for franchisee employees. These are policy concerns for Washington State.

Washington State’s Attorney General issued a civil investigative demand (“CID”) to Jersey Mike’s. The CID sought information on whether Jersey Mike’s included a no-poaching provision in its franchise agreements and whether the provision was enforced. Jersey Mike’s responded that it did not enforce the provision and had removed it from franchise agreement forms. The Attorney General still demanded removal of the provision from all existing Jersey Mike’s franchise agreements nationwide.

Jersey Mike’s refused to comply with the nationwide removal demand, arguing that a demand by Washington State should be limited to Washington franchises. The Attorney General then sued Jersey Mike’s, alleging that the non-poaching provision was a per se violation of state antitrust law. After months of discovery, the parties settled. Jersey Mike’s agreed to exclude antipoaching provisions in any new or renewed franchise agreements, and to remove the antipoaching clause from all existing franchise agreements in the U.S. Jersey Mike’s further agreed to pay the Attorney General $150,000 for costs and attorneys’ fees.

Franchisors should review their current franchise agreements with franchise counsel to analyze the benefits of removing antipoaching provisions from their form franchise agreement. Washington is one of several states investigating use of antipoaching provisions in franchise agreements. Franchisors can expect scrutiny of such provisions in the future.

Washington v. Jersey Mike’s Franchise Systems, Inc., No. 18-2-25822-7 SEA (Wash. Super. Ct. 2018)

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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