In a marked progress in the no-poach litigation landscape, the Seventh Circuit Court has now revived the lawsuit involving employees of renowned fast-food chain McDonald’s. In June 2022, McDonald’s had achieved a judgment based on the pleadings, effectively putting an end to an antitrust litigation that questioned the legality of a no-hire clause previously included in its franchise agreements. More than a year later, the outcome has seen a turnaround.
The appellate court in question has reversed and remanded the case. This means that the case will go back to the trial court for a potential re-litigation on certain issues raised. The Seventh Circuit rejected the district court’s assumption that these no-poach clauses were ancillary restraints to McDonald’s franchise agreements, which regulated the employment of individuals who had worked under the said franchise agreements. As such, they ruled that these were subject to ‘rule of reason’ analysis.
The ‘rule of reason’ is a legal doctrine used in antitrust law to determine whether a particular business practice should be considered illegal. By employing this rule, the court seeks to ascertain whether the practice promotes or suppresses marketplace competition.
This turnaround in judgment brings with it a substantial shift in the understanding and interpretation of employment practices within franchising agreements. Legal professionals, particularly corporate legal counsel, and HR leadership in large corporations with franchising models may need to consider revising their employment policies to ensure that they’re in compliance with the clarifications and interpretations put forth by this ruling.