Franchisors need to review their franchise agreements and take immediate action in response to the recent onslaught of legal action over “naked no-poaching” provisions in franchise agreements, according to a post in Franchise Law Update on the website of Fox Rothschild.

“In a typical franchise agreement, a franchisor will prohibit a franchisee from poaching its or its other franchisees’ employees during the term of the franchise agreement and for a period of time after the franchise agreement ends,” the authors explain.

In April 2018, the U.S. Department of Justice initiated a criminal complaint against a number of companies respecting naked no-poaching agreements. While the case settled with only civil penalties imposed, the DOJ expressly stated that it was reserving the criminal question and planned to “zealously enforce” the law.

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A federal court in Colorado recently upheld a franchisor’s non-competition provision despite that state’s strong public policy against non-competes, reports Alexander S. Radus on Fox Rothschild’s Franchise Law Update.

“The franchisor prevailed due to its thoughtful contract drafting and ability to effectively communicate the unique nature of franchising to the court,” Radus writes.

In the article, he describes the case and concludes that the decision illustrates why franchisors should ensure that their franchisees’ owners and key employees, especially those with access to confidential materials and training, sign non-competes in their individual capacities.

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Opening arguments kicked off Thursday in a long-awaited National Labor Relations Board case that could, for the first time ever, put McDonald’s on the hook for labor violations committed by the company’s franchised restaurants, reports International Business Times.

The case could determine whether McDonald’s is a so-called joint employer of workers at its franchisees, the independently-owned businesses that make up 90 percent of the company’s roughly 13,000 stores in the U.S and employ the vast majority of its 420,000 workers, explains reporter Cole Stangler.

“In addition to making the company more liable for labor violations, a decision from the NLRB that McDonald’s is a joint employer would open the door for a union formed by workers at franchised stores to bring the parent company to the bargaining table,” according to the report. “Such a ruling could also set a precedent for other fast-food franchises, according to industry observers and legal experts.”

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