Papa John’s has become the latest big-name food purveyor to face allegations that it has overstepped federal antitrust laws by including in its franchise agreements no-poach and no-hire clauses that prevent individual franchisees from hiring each other’s employees. The lawsuit out of Kentucky, which seeks class action status, alleges defendants Papa John’s International, Inc. and Papa John’s USA, Inc. have implemented and facilitated a system that’s allowed more than 2,700 franchisees nationwide to collude to “suppress the wages and employment opportunities” of restaurant-based workers. Such conduct, the complaint alleges, reflects “a naked restraint of competition.”
According to the suit, the relevant part of Papa John’s franchise agreements that limits mobility among employees reads:
“You covenant that you will not, during the Term and for a period of one year after expiration or termination of the Franchise, employ or seek to employ any person who is employed by us, our Affiliates or by any of our franchisees, or otherwise directly or indirectly solicit, entice or induce any such person to leave their employment.”
Franchisees who breach their agreement with Papa John’s may be subject to an outright termination of their franchise rights with the pizza corporation, the case adds, and be on the hook for all damages and legal costs incurred by the defendants, among other repercussions.
All told, according to the complaint, Papa John’s no-poach/no-hire provisions in its franchise agreements have eliminated any incentive for the independently owned and operated pizza joints to compete for employees. Franchisees, the case says, have been able to keep salaries and benefits low due to the absence of a competitive job marketplace for Papa John’s employees.
The case goes on to note that even though Papa John’s has reportedly removed the no-poach language from its franchise agreements, thousands of Papa John’s restaurants still operate under the old contractual rules.