For the past few years, it seems franchisors have been riding a roller coaster when it comes to no-poach clauses in their franchise agreements. While for a time it seemed as though scrutiny for such clauses might be fading, on February 17, 2022, the Department of Justice (“DOJ”) filed a motion requesting permission to file a statement of interest in an ongoing case involving restrictions contained in McDonald’s’ franchise agreements. These restrictions prohibit the solicitation or employment by franchisees of individuals who had worked at another McDonald’s. McDonald’s had been relying on an existing statement of interest filed in a separate case by the DOJ during the previous administration’s tenure that called for an evaluation under the “rule of reason” rather than as a “per-se” violation under the Sherman Act.

Under the “rule of reason,” to succeed, a Plaintiff has to show that the alleged anti-competitive effects of the franchisor’s practices outweighed their pro-competitive benefits and justifications. This approach is more favorable for franchisors since it looks at the franchise relationship more holistically and places a higher bar on a plaintiff. However, this new request by the DOJ signals that the sentiment at the DOJ may no longer support that approach.

The chain of thought advanced by the previous DOJ statement of interest was that franchise arrangements are “vertical” since all parties are associated with the same brand which has some shared and overlapping...

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