Eastern District Of Michigan Allows Sherman Act Suit Based On Employee No-Poach Agreement To Proceed
06/04/2019On May 24, 2019, Judge Victoria A. Roberts of the United States District Court for the Eastern District of Michigan denied defendant Domino’s Pizza Franchising LLC’s and other related Domino’s corporate entities’ motion to dismiss, finding that plaintiff, an employee of one of defendants’ franchisees, had adequately alleged a no-poach agreement in violation of Section 1 of the Sherman Act. Blanton v. Domino’s Pizza Franchising LLC, No. 18-13207 (E.D. Mich. May 24, 2019). The Court also found that plaintiff plausibly pleaded that defendants’ fraudulently concealed their conduct such that the Sherman Act’s four-year statute of limitations was tolled.
The suit, brought on behalf of a putative class of current and former employees of defendants’ independently-owned franchises, alleged that defendants violated the Sherman Act by enacting an employee no-poach (also known as “no-hire”) agreement among defendants’ nationwide franchise network. The no-poach agreement, which was alleged to have been included in each of defendants’ franchise agreements from at least January 2013 to April 2018, required defendants’ franchise owners to agree not to solicit or hire employees of another network franchise unless the franchise where the employee currently worked provided written consent. Plaintiff alleged that defendants used these franchise agreements to organize a conspiracy among their franchisees to not compete for labor, thereby depressing employee wages, lessening employee benefits, and stifling employee mobility.
The Court first addressed defendants’ argument that plaintiff had failed to sufficiently allege Article III standing or antitrust injury. The Court found that plaintiff’s allegation that he and other members of the putative class had their wages depressed satisfied the injury requirement for Article III standing because courts have long recognized these types of economic injuries to be sufficient. The Court also found that plaintiff sufficiently alleged that defendants’ conduct caused him harm by pleading that the alleged no-poach conspiracy directly resulted in depressed wages. Plaintiffs likewise satisfied the redressability requirement, because he sought treble damages, which would more than make up for his lost wages. The Court rejected defendants’ argument that plaintiff failed to plead antitrust injury, finding that plaintiff had sufficiently alleged that his injury was a result of an anticompetitive conspiracy not to compete for labor.
The Court then turned to defendants’ argument that plaintiff had failed to allege a plausible violation of the Sherman Act. Plaintiff argued that the no-poach agreement was evidence of a horizontal restraint of trade that was a per se violation of the Sherman Act. Plaintiff also argued that, in the alternative, the Court should apply the “quick look” test to find that he plausibly pleaded a violation of the Sherman Act, because the anticompetitive effects of the no-poach agreement were obvious even to a person with a rudimentary understanding of economics. Conversely, defendant argued that the Court should dismiss plaintiffs’ claim under the rule of reason.
The Court did not accept either party’s argument and declined to announce which standard of analysis should be applied, finding that further factual development was necessary to resolve that question. The Court nonetheless found that plaintiff had adequately alleged a violation of the Sherman Act. The Court reasoned that plaintiff had plausibly pleaded the existence of a “contract, combination, or conspiracy” in violation of the Sherman Act by alleging that defendants orchestrated an agreement not to compete for labor among its franchisees and that the franchisees tacitly agreed not to hire each other’s employees by signing the franchise agreement. The Court also found that plaintiff sufficiently alleged that the agreement had a clear lack of redeeming value such that it could be presumed unreasonable.
Finally, the Court addressed whether plaintiff had sufficiently pleaded that defendants fraudulently concealed the existence of the no-poach agreement such that the four-year statute of limitations was tolled. Defendants urged the Court to reject this position, arguing that they could not have wrongfully concealed the no-poach provision because it was publically available and because plaintiff failed to plead that he took affirmative steps to discover his cause of action within the limitations period. The Court rejected both of these arguments. The Court first reasoned that plaintiff had alleged that defendants made public representations that franchisees made their own employment decisions and that employees could advance from an entry-level position to store ownership, when in fact the no-poach provision prohibited franchises from hiring employees of other franchises and limited employee mobility. The Court next reasoned that plaintiff adequately alleged that employees of defendants’ franchises did not have access to relevant franchise agreements because—although defendants claimed the agreements were publically available—they failed to say how or where an employee could have accessed them.
This case follows on the heels of a recent string of high-profile cases in the Eastern District of Washington, in which employees brought similar antitrust claims against other fast-food franchises. In those cases, the U.S. Department of Justice (“DOJ”) submitted statements of interest expressing its assessment that a franchisor and franchisee are capable of conspiring and may be held liable for anticompetitive agreements between themselves under Section 1 of the Sherman Act. See Corrected Statement of Interest of the United States, Harris v. CJ Star, LLC, 2:18-cv-00247 (E.D. Wash. Mar. 8, 2019); Corrected Statement of Interest of the United States, Richmond v. Bergey Pullman Inc., 2:18-cv-00246 (E.D. Wash. Mar. 8, 2019); Corrected Statement of Interest of the United States, Stigar v. Dough Dough, Inc., 2:18-cv-00244 (E.D. Wash. Mar. 8, 2019). The DOJ also expressed that, in its view, “naked no-poach agreements between competitors are per se unlawful”—even if those competitors are both franchisees of the same chain. However, the DOJ explicitly expressed its opinion that no-poach clauses in franchise agreements between a franchisor and franchisee—such as those at issue in this case—are subject to the rule of reason and not to “quick look” analysis. The DOJ also expressed an opinion that no-poach agreements as part of an alleged hub-and-spoke conspiracy between a franchisor and multiple franchisees should be analyzed under the ancillary-restraints doctrine. It remains to be seen whether the Court here will ultimately follow DOJ guidance.