Southern District Of Florida Dismisses Antitrust Claim Despite Burger Franchise’s Explicit No-Hire Agreements
04/14/2020On March 24, 2020, the United States District Court for the Southern District of Florida granted defendants Burger King Worldwide, Inc., Burger King Corporation, Restaurant Brands International, Inc., and Restaurant Brands International Limited Partnership’s (“Burger King”) motion to dismiss plaintiffs’ claim that Burger King and its franchises colluded to limit employment options and suppress wages for franchise employees. Jarvis Arrington et al. v. Burger King Worldwide, Inc., et al., No. 1:18-cv-24128 (S.D. Fla. 2020). The Court dismissed plaintiffs’ claim because Burger King and its franchises are not independent entities for the purpose of § 1 of the Sherman Act and thus not capable of conspiring.
Plaintiffs, a class of employees at Burger King’s franchises, brought their claim under § 1 of the Sherman Act, which requires concerted action between separate entities. Plaintiffs alleged that the franchise agreement included a “no-hire” clause that limited the ability of employees to switch franchise locations despite franchises being independently owned and responsible for their own hiring. Plaintiffs claimed that this depressed wages and limited employment opportunities for franchise employees in per se violation of § 1 of the Sherman Act.
The Court found plaintiffs’ analysis formalistic and unconvincing. As a threshold issue, the Court determined that Burger King and its franchises could not act in concert because the franchisee and franchisor should be treated as a single entity under antitrust laws. To determine what constituted separate entities capable of conspiring under Sherman Act § 1, the Court relied primarily on two guidepost Supreme Court decisions, Copperweld Corp. v. Indep. Tube Corp., 467 U.S. 752 (1984), and Am. Needle, Inc. v. Nat’l Football League, 560 U.S. 183 (2010). Examining the facts in each case, the Court found that the at-issue franchises more closely resembled Copperweld’s single corporation organized into de facto branches (which are exempt from § 1 liability) than American Needle’s associated National Football League teams which compete against one another for players, coaches, fans and ticket sales. In reaching this conclusion, the Court highlighted evidence of the franchises’ uniform operations and branding, equipment and training, and joint royalties and marketing costs. The Court found that the operations of the system actually enhanced competition in the marketplace by allowing Burger King (and its franchises) to compete with other chain burger restaurants by providing a consistent product at a predictable price.
Burger King’s no-hire clause was best characterized as an “internal agreement” implementing a unitary policy. The Court cautioned that accepting plaintiffs’ arguments would motivate corporations to structure themselves solely to escape antitrust liability (for example, avoid franchise arrangements) without providing any procompetitive benefits to the marketplace.
This case serves as a reminder of the scope of antitrust laws and their limits. Potential litigants should be aware that legal separateness is not dispositive in determining whether entities are distinct economic actors capable of conspiring to violate § 1 of the Sherman Act.