Food & Beverage

7 fast-food chains to end 'no poach' deals that lock down low-wage workers

Tiffany Hsu
Customers at a McDonald's restaurant
Scott Mlyn | CNBC

Seven major restaurant chains, including Arby’s, Carl’s Jr., McDonald’s and Jimmy John’s, have agreed to drop a hiring practice that critics say may be keeping tens of thousands of fast-food workers locked in low-wage jobs.

Under agreements with Washington State announced on Thursday, the companies — Auntie Anne’s, Buffalo Wild Wings and Cinnabon are the others — have pledged to remove so-called no-poach clauses from their contracts with franchisees.

The provisions prohibit workers at, for example, one Carl’s Jr. franchise from going to another Carl’s Jr. They do not stop those workers from taking jobs at restaurants run by a different chain.

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In addition to stripping the clauses from existing franchise contracts in Washington, the seven chains have also vowed not to enforce them nationwide — a move that affects workers at tens of thousands of stores. The clauses cannot be included in new and renewed deals either.

No-poach clauses have drawn scrutiny over whether they specifically hold down pay for restaurant employees — one of the largest segments of the United States’ work force — and also contribute to a broader wage stagnation that continues to plague the economy long after the end of the recession.

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Many types of franchise businesses impose the clauses, but they may be most prevalent in the restaurant industry, and ubiquitous in the fast food sector.

“My goal is to eliminate these provisions in all fast-food contracts in my state,” Attorney General Bob Ferguson of Washington, whose office reached the legally binding agreements with the seven chains, said in an interview this week. His office began investigating the issue several months ago after The New York Times published an article exploring how the clauses limit workers’ mobility.

The impact of the agreements negotiated by Mr. Ferguson’s office goes far beyond his state.

Unlike noncompete clauses, which job-seekers can review before signing hiring documents, no-poach provisions are buried in contracts between restaurant chains and franchisees, which independently own and operate the majority of stores. Workers at these stores may not even know they are bound by the restrictions until they try to land new jobs.

Franchise owners say the clauses help protect their investments of time and money in training employees. But a job offer from a prospective employer is often the best leverage with a current boss, and some economists worry that the provisions hinder people’s ability to exercise that leverage.

Last year, the Princeton University economists Alan Krueger and Orley Ashenfelter published a study in which they estimated that no-poach clauses affected about 70,000 restaurants in the United States, or more than a quarter of fast food restaurants.

After examining the franchise deals of 40 of the country’s largest chains, Professor Krueger and Professor Ashenfelter concluded that no-poach restrictions appeared to exist mainly to limit competition and turnover, possibly depressing wages in the process.

“I’m pleased that the research that Professor Ashenfelter and I did has shined attention on this issue,” Professor Krueger said this week. “I hope that either through judicial action or legislation or voluntary decision by the franchise chains, that these noncompetitive practices are dropped.”

McDonald’s, the largest fast-food chain in the country by revenue, last year removed the clause in its franchise contracts, and said that it would not enforce them in existing contracts.

But some workers’ rights advocates have said McDonald’s did not always keep that promise. The company’s agreement with Mr. Ferguson’s office makes it legally binding.

In a statement, McDonald’s said it was “pleased to cooperate” with Mr. Ferguson’s office. Jimmy John’s declined to comment. The other five companies did not immediately reply to requests for comment.

Maria Sanchez, 50, worked part time at a McDonald’s in Grimes, Iowa, this year. But she needed more hours than she was being scheduled for, so she found a job at a nearby McDonald’s that offered more shifts.

She said she had made it as far as orientation when a manager told her the store had learned that it could not hire her.

“I cried all the way until I got home,” Ms. Sanchez, who is originally from Mexico, said through a translator provided by the advocacy group Fight for 15. “I can’t survive with 25 hours a week.”

McDonald’s said on Thursday that it was unaware of Ms. Sanchez’s situation and was looking into it.

She had described her experience to staff members in the office of Massachusetts’s attorney general, one of 11 attorneys general who on Monday announced their own inquiry into hiring at eightfast-food chains, including Arby’s, to determine whether their no-poach clauses broke any laws.

Mr. Ferguson is not involved in that investigation, he said, because his was already well underway. He said his office was still examining hiring at other fast-food companies that operate in Washington. “Not all are as cooperative as these seven have been,” he said.

Ms. Sanchez, of Iowa, said she eventually got a job at a different McDonald’s.

“I never told them that I worked for another McDonald’s,” she said, adding that she recently left the new job after hurting her back. “I was scared to mention that I was working in another McDonald’s, because I need my job.”