In the case of Arrington v. Burger King Worldwide, Inc., 47 F.4th 1247 (11th Cir. 2022), the US Court of Appeals for the Eleventh Circuit addressed the issue of whether a franchisor and independent franchisees took concerted action in violation of Section 1 of the Sherman Antitrust Act. As one of the largest fast-food restaurant chains, the Burger King Corporation (“BKC”) (Defendant) did not own most of the restaurants. Rather, more than 99% of BKC restaurants were independently owned franchise restaurants. To obtain a BKC franchise, a potential franchisee must sign a standard franchise agreement, containing a “No-Hire Agreement” that led to the litigation in dispute. The No-Hire Agreement bound the franchisees not to attempt to hire any current employees of other BKC franchisees for six months after the employee left the first BKC restaurant.
The Plaintiff, an employee of BKC, alleged that the No-Hire Agreement violated the Sherman Antitrust Act by restricting competition to depress wages and employment opportunities, and filed a lawsuit against BKC in the US District Court for the Southern District of Florida. The plaintiff argued that such agreements among independent franchisees and BKC amounted to a conspiracy. However, the district court dismissed the decision on the grounds that BKC and its franchisees constituted a single economic entity, incapable of colluding under the Sherman Act. The Plaintiff appealed.
The US Court of Appeals for the Eleventh Circuit held in Arrington v. Burger King Worldwide, Inc., 47 F.4th 1247 (11th Cir. 2022), that the Plaintiff plausibly alleged that BKC and its independent franchisees took concerted action in violation of Section 1 of the Sherman Act when they entered into a No-Hire Agreement with respect to franchise employees. The Court relied on the US Supreme Court’s decision in Am. Needle, Inc. v. Nat’l Football League, 560 U.S. 183, 130 S. Ct. 2201, 176 L. Ed. 2d 947 (2010), in reaching the conclusion that the No-Hire Agreement between Burger King and its franchisees deprived the marketplace of independent decision-makers and harmed actual and potential competition.
In its analysis, the Court emphasized that whether an arrangement rose to the level of concerted actions depended on the “substance, not form.” Here, the key to understanding the substance of concerted actions was “whether it joins together separate decision-makers.”
The Court relied on the Supreme Court case American Needle to support its argument. In American Needle, the Supreme Court considered whether the 32 teams of the NFL engaged in concerted actions when they granted an exclusive license to a company to make and sell trademarked headwear. Although the teams shared interests in the properties and promotions of the NFL, the 32 teams still competed with each other for fans, gate receipts, and contracts with playing personnel. Each team engaged in its own decision-making process and was considered independent centers of decision-making. However, when the 32 teams joined together to license their trademark exclusively to one company, this arrangement deprived the marketplace of independent centers of decision-making and therefore of actual or potential competition.
This Court argued that Arrington was similar to American Needle because each BKC franchisee had its own recruiting process and possessed no fiduciary relationship with other BKC franchisees, as outlined in the Burger King Franchise Disclosure Document. In the absence of a No-Hire Agreement, each franchisee pursued its own hiring decisions, including wages, hours, and whom to hire. However, the No-Hire Agreement removed the ability for a franchisee to freely hire or solicit employees from other BKC franchisees. By doing so, the agreement deprived the marketplace of independent centers of decision-making about hiring, and therefore of actual or potential competition. For the reasons above, the Court of Appeals reversed the district court’s decision.
Franchisees can learn from Arrington v. Burger King Worldwide, Inc. that No-Hire agreements between franchisors and franchisees could potentially violate Section 1 of the Sherman Antitrust Act if they restricted competition and harmed the marketplace. This case highlighted the importance of ensuring that agreements among franchisees do not eliminate independent decision-making and competition, as such arrangements could be seen as concerted actions that reduce potential competition in the labor market.
