In what is being viewed as a victory for worker’s rights, the U.S. Court of Appeals for the 7th District has ruled against McDonald’s in its controversial practice of “no-poach agreements” and its outcome could have significant implications for workers nationwide.
A lower court had initially ruled against the former McDonald’s employees in Demands v. McDonalds, but with that decision overturned the fast-food behemoth finds itself back in legal crosshairs as the antitrust lawsuit is now being allowed to advance.
“Workers should be able to move freely to another job — one that might pay them better, or have better hours, or better benefits, or be closer to their home. McDonald’s use of no-poach provisions in their contracts undermines competition,” said Attorney General Bonta. “I’m pleased that the 7th Circuit ruled in favor of the former McDonald’s workers and allowed their lawsuit to proceed.”
The class-action antitrust case against McDonald’s was filed in 2017 after a McDonald’s manager had to pass on a higher paying job at another McDonald’s franchise due to the company’s anti-poaching policy preventing franchisees from hiring anyone working for McDonald’s or another franchise until six months after the employee’s last day.
Experts maintain that such agreements not only reduce worker mobility but also serve to depress wages and stifle competition.
No-poach agreements are arrangements among employers not to recruit each other’s workers or to fix wages or other terms of employment among a pool of workers. Antitrust regulators argue they can reduce worker mobility, suppress worker wages, and prevent workers from establishing competing businesses. In many cases, they also serve to reduce racial and gender equality in workplaces, create legal hurdles for employees looking to grow their careers, and deter workers from challenging harmful business practices.
More often than not, these provisions are not discussed up front and are sometimes added to the terms of employment after a worker has accepted a job, or even after they have begun work.
In California, employers—including those who operate out of state but employ California residents—are generally prohibited from enforcing no-poach or non-compete agreements. California is not alone. Nearly 30 states have enacted laws that in some way protect employees from employer-imposed noncompete contracts and no-poach arrangements,
In January 2023, the FTC proposed the Non-Compete Clause Rule concluding that non-competes were an unfair method of competition. According to an analysis of U.S. national survey data from 2014, approximately 18 percent of labor force participants were bound by non-competes, and 38 percent had agreed to one in the past, usually because employers insisted on them and workers lacked a meaningful ability to negotiate otherwise.
Currently, the legality of such non-compete agreements is left to the states, creating confusion for workers and distorting labor markets that cover more than one state.
“Despite being prohibited in California, non-compete provisions are routinely included in employee contracts, including contracts for lower-wage workers,” said Attorney General Bonta. “I strongly support limiting non-compete clauses on a national scale. It’s time for the federal government to catch up and help put an end to anti-competitive practices that depress wages and hurt consumers.”
Low and middle-wage workers would benefit the most from such a move, with a high potential for wage increases and job mobility. Studies have also shown that non-compete clauses cause women and non-white workers to see earnings reductions two times greater than that experienced by white male workers. The states also note that eliminating non-competes would benefit businesses and the economy as non-competes restrict entrepreneurship and start-up activity.
Non-competes are widely used in the healthcare industry and restrict the entry of healthcare workers into their employment market, which inflates prices and decreases wages.
In 2022, Bonta issued an alert reminding employers and workers that non-compete agreements were not enforceable in California. A new bill—AB 1076—introduced by Assemblymember Rebecca Bauer-Kahan would also make it unlawful to include a noncompete clause in an employment contract, or to require an employee to enter a noncompete agreement, that does not satisfy specified exceptions. The bill would require employers to notify current and former employees in writing by February 14, 2024, that the noncompete clause or agreement is void.
In the meantime, California workers who have entered into, an unreasonable or overly restrictive non-compete agreement can report it to the Attorney General’s office at www.oag.ca.gov/report.