Regulators Investigate Fast-Food Chains’ Limits On Worker Recruitment

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High-tech and other companies looking to protect trade secrets often impose "noncompete" clauses limiting where employees can work after they leave. But such restrictions are also used by fast-food franchises.

It's common for a franchisee to agree to not recruit or hire workers who work for a different franchise in the same chain. The practice is coming under increasing fire from regulators and lawmakers who are concerned that it limits workers' ability to get new and better jobs.

On Monday, a group of 10 state attorneys general and the District of Columbia announced an investigation into "no poach" agreements, as they are known, at eight national fast-food chains. The investigators are seeking additional information from Burger King, Wendy's, Arby's, Panera, Dunkin' Donuts, Five Guys, Little Caesars and Popeyes.

The goal of the probe is to help quantify how many people are affected and how it affects workers' ability to move up the ladder, says Josh Shapiro, Pennsylvania's attorney general.

"All you're doing there is holding people back; you're driving down wages and benefits and decreasing opportunity," Shapiro says. "We see that as being wrong, potentially violative of the law, which is why we are leading this investigation and trying to get to the bottom of it."

While noncompete clauses restricting a workers' ability to take similar jobs are relatively common for some jobs that involve trade secrets or intellectual property, regulators argue that such measures aren't justified when it comes to low-wage restaurant work.

About 80 percent of fast-food operators use such agreements, Shapiro says. But restaurants are not the only industry that relies on them, and they, too, will be targets.

Other regulators and lawmakers have already expressed concern about no-poach agreements. The Justice Department is investigating such contracts for potential violations of antitrust laws. In February, Democratic Sens. Cory Booker of New Jersey and Elizabeth Warren of Massachusetts introduced legislation barring contracts that prevent workers from being hired by their competition. The proposal is seen as having little chance of passing a Republican-controlled Congress.

No-poach agreements have been standard practice for some time, says Matt Haller, senior vice president for the International Franchise Association.

"The intent has always been to protect the unique, proprietary training," which is expensive and time-consuming, he says.

But the restaurant industry is also shifting, Haller says. A handful of fast-food brands have also recently eliminated the practice — though he declined to say which ones.

"The business model wants to help people succeed, and if there are things within franchise agreements that aren't helping employees get ahead, then we want to do something to address that," he says.

The state attorneys general are asking restaurant chains to submit additional information about their no-poach agreements by Aug. 6.

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