No Poaching Employees Clause May Be to Blame for Stagnant Wages, Economists Theorize

Low wages at fast food restaurants may stem from the use of a no poaching employees clause. Economists investigating the issue have reportedly singled out such clauses as part of the problem.

Restaurants such as Burger King, Carl’s Jr., and Pizza Hut have allegedly implemented a no poaching employees clause. Until recently, McDonalds reportedly implemented a no poaching employees clause as well, according to an article by the New York Times.

A no poaching employees clause prohibits franchises of a company, such as Domino’s or Pizza Hut, from hiring employees from each other. The no poaching employees clause does not appear in any paperwork employees see or sign, but instead is buried in contracts between franchises and corporate headquarters.

These clauses mean that employees are not able to switch jobs to a new location or negotiate for higher pay based on another job offer. Anti-poaching clauses lead to lack of worker mobility, which has been repeatedly linked to fixed wages. Because switching jobs is a common way to get a raise, lack of mobility can be extremely harmful to employee wage mobility.

Supporters of the practice argue that a no poaching employees clause protects a business’ investment in their employees. However, two lawsuits filed against CKE Restaurant Holdings, parent company to McDonald and Carl’s Jr., reject this argument. The lawsuit claims that a no poaching employees clause is in violation of antitrust and labor laws. Following the no poaching employees clause lawsuits, McDonald’s removed the language from their contracts but declined to say if litigation played a role in their decision.

Although McDonald’s has removed their no poaching employees clause from their contracts, similar rules affect an estimated 70,000 fast food restaurants. This number comprises over a quarter of all fast food restaurants in the United States. Numerous companies have fallen under scrutiny following litigation over non-compete including Burger King, Pizza Hut, and Domino’s.

According to Alan. B Krueger, a Princeton University economist and former chairman of the Council of Economic Advisers, many companies include a no poaching employees clause in their contracts to limit franchise competition and employee turnover. Companies claim that these practices are used to prevent the spread of trade secrets, but Krueger argues that they mostly keep labor costs to a minimum.

“I think it’s very hard to make the argument that noncompetitive agreements are necessary for low-educated, low-wage workers because they have trade secrets,” Krueger told the New York Times. “This practice does have the potential to restrict competition and significantly influence pay.”

Professor Kreuger released research alongside Orley C. Ashenfelter, another professor at Princeton and a renowned labor-economist. The two professors suggest that the use of a no poaching employees clause may explain the stagnant wages plaguing working class Americans.

“It might help explain a recent puzzle in the U.S. job market,” Professors Kreuger and Ashenfelter wrote in their report. “Unemployment has reached a 16-year low and job openings are at an all-time high, yet wage growth has remained surprisingly sluggish.”

Join a Free Fast Food Employee Poaching Class Action Lawsuit Investigation

If you work for Arby’s, Burger King, Jimmy John’s, Papa John’s, Pizza Hut or Domino’s and were prevented from moving to a different franchise that is part of the same company, you may have been the victim of a no-poach agreement. If so, you may qualify to participate in this employee poaching class action lawsuit investigation.

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