Attorneys general in 10 states are moving to investigate whether a clause in fast-food franchise agreements is preventing workers from switching jobs, locking them into low-paying positions and, some economists say, contributing to widespread wage stagnation in the United States.
In a letter released publicly on Monday, attorneys general from California, Massachusetts, New York, seven other states and Washington, D.C., asked eight restaurant chains for information about whether their contracts with franchisees prohibited them from hiring workers away from one another. Arby’s, Burger King and Wendy’s were among the chains.
The restrictions, often referred to as no-poach clauses, do not stop workers from switching from, say, an Arby’s store to a Wendy’s, but can keep an employee of one Wendy’s location from taking a job at another.
Although many types of franchise businesses impose such clauses, they may be most common in the restaurant industry, one of the largest employers in the United States. The fast-food sector, in particular, relies overwhelmingly on independently owned and operated franchise stores.
The prevalence of the provisions has caused concern in some quarters that they may help explain the wage stagnation that has hit fast-food workers especially hard since the recession, even as the nation’s unemployment rate has decreased.
“By limiting potential job opportunities, these agreements may restrict employees’ ability to improve their earning potential and the economic security of their families,” the attorneys general wrote in their letter. They added that the agreements also hurt franchisees by restricting whom they could hire.
Unlike noncompete clauses, which a person may sign as part of an employment contract, no-poach clauses are buried in contracts between the chains and franchisees, which are not obligated to tell workers about the provisions. Workers may not know they are subject to the restrictions until they try to take another job.
“What we worry is that workers aren’t even told,” said Cynthia Mark, the chief of the fair labor division of the Massachusetts attorney general’s office, which is leading the inquiry. Ms. Mark recalled speaking with a McDonald’s worker who told of being blocked from accepting a higher-paying job at a different McDonald’s franchise because of a no-poach provision.
McDonald’s, the country’s largest fast-food chain by revenue, removed the provisions from its agreements with franchisees last year.
Proponents of the restrictions argue that they protect restaurants’ investments in training in an industry where employee turnover is high.
Fast-food restaurants have generated more jobs than nearly any other sector since the recession. About 4.5 million people work at so-called limited service restaurants, according to the most recent figures from the Bureau of Labor Statistics.
No-poach clauses came under particular scrutiny last year after two prominent economists at Princeton University published a paper in which they argued that the restrictions appeared to exist chiefly to limit competition and turnover, potentially affecting pay in the process.
The other restaurants targeted in the inquiry are Dunkin’ Donuts, Five Guys Burgers and Fries, Little Caesars, Panera Bread, and Popeyes Louisiana Kitchen.
In separate statements, representatives of Dunkin’ Donuts and Wendy’s said the companies did not restrict hiring among franchisees.
According to financial disclosure filings, both companies do, however, impose some restrictions on hiring between franchisees and the corporate entity. The restrictions probably affect far fewer workers.
The other restaurant companies targeted by the attorneys general did not immediately respond to requests for comment.
The other states involved in the action are Illinois, Maryland, Minnesota, New Jersey, Oregon, Pennsylvania and Rhode Island.
Robert Gebeloff contributed reporting.
