In two separate class action litigations, former employees sued McDonald’s USA, LLC and McDonald’s Corporation (“McDonald’s”) and Burger King World-wide, Inc., Burger King Corporation, Restaurant Brands International, Inc., and Restaurant Brands International Limited Partnership (“Burger King”).
Plaintiffs in both litigations claim that McDonald’s and Burger King violated antitrust law by including “no-poach” provisions in their franchise agreements. These provisions purportedly limited franchisees’ discretion to hire employees away from other restaurants within the respective franchise systems and thus, plaintiffs allege, unlawfully suppressed wages. In June, the United States District Court for the Northern District of Illinois entered a judgment on the pleadings against the McDonald’s plaintiffs. On the other hand, in August, the Eleventh Circuit Court of Appeals overturned a seemingly similar District Court order dismissing the class action in the Burger King case. How the two cases will resolve is not yet clear, but economic analyses concerning market definition and market power likely will be important in the resolution of both cases.
In both cases, the plaintiffs allege that the courts should analyze their claims either under the “per se” rule or the “quick look” mode of analysis. Neither mode requires plaintiffs to allege relevant markets or market power or to prove harm to competition. The rule of reason is the third mode of analyzing allegedly anticompetitive restraints. Under the rule of reason, the plaintiff bears the initial burden of showing that the challenged practice or conduct has an anticompetitive effect. This generally involves proof that the defendant has market power in a relevant antitrust market and that the challenged conduct could have anticompetitive effects. Alternatively, plaintiffs can directly show anticompetitive effects in a relevant antitrust market — for example, lower market wage levels caused by the challenged conduct.
In the context of its denial of plaintiffs’ motion for class certification in the McDonald’s case, the District Court found that the appropriate mode of analysis was rule of reason. The Court noted that a) the rule of reason was the presumptive mode of analysis according to the U.S. Supreme Court’s decision in National Collegiate Athletic Association v. Alston and b) McDonald’s had put forth plausible procompetitive justifications for the restraints, including enhanced output in the end market for fast food. Having ruled against class certification, the Court’s June order concerned the named plaintiffs’ claims. The Court ruled against the named plaintiffs, because they had not defined a relevant antitrust market in which McDonald’s allegedly had market power.
The dismissal decision in the Burger King case was different. In that case, the United States District Court for the Southern District of Florida ruled, in March 2020, that Burger King was legally incapable of conspiring with its franchisees. The District Court in this case did not address the proper mode of analysis or whether the plaintiffs had properly pled a conspiracy under the rule of reason.
The Eleventh Circuit Court of Appeals overturned the District Court’s decision that as a matter of law Burger King was incapable of conspiring with its franchisees. Burger King argued in its appellate briefs that even if the Eleventh Circuit disagreed with the District Court regarding whether Burger King and its franchisees were legally capable of conspiring with each other, the Eleventh Circuit should still affirm the dismissal order for failure to plead sufficient facts to support a plaintiff verdict under the rule of reason. According to Burger King, plaintiffs had not alleged a relevant market or market power in a relevant market, just as the plaintiffs in the McDonald’s case had failed to do. The Eleventh Circuit declined to rule on this issue, directing the District Court to address it first.
Whether the rule of reason is the appropriate mode of analysis and whether it is necessary to plead a relevant market under the rule of reason are key issues. A requirement to plead relevant antitrust markets may be fatal to class certification in both cases. First, an economic analysis of the relevant geographic markets for workers at a McDonald’s or Burger King location is likely to indicate that such relevant markets are local. Second, while it is theoretically plausible that some workers may have acquired McDonald’s-specific or Burger-King specific skills so that they might earn more at McDonald’s brand or Burger King brand restaurants, it is not likely that this is true for all employees within the two systems. Many new hires have no prior McDonald’s or Burger King experience. Some have no work experience at all. Thus, each potential class member’s claims involve individualized questions about the degree of competition for the class members’ services in the class member’s local area from all potential employers, not just McDonald’s- or Burger King-branded restaurants. There also would be a host of other individualized, market-specific, and time-specific questions to address in order to prove harm to competition and individual injury.
Plaintiffs in the McDonald’s case have not yet filed any appeals briefs. However, the plaintiffs in the Burger King case argued on appeal that they had pled sufficient facts to support a rule of reason claim. They argued that it was not necessary to define a relevant market under the rule of reason, saying that it was sufficient to plead that wages were suppressed. Plaintiffs in the McDonald’s case may also make similar claims on appeal. However, it may be impossible as an economic matter to prove that wage levels were suppressed in a relevant market without determining the bounds of that market, thereby determining the pertinent set of wages to analyze. Thus, market definition may be a key point of contention and a key factor in the resolution of these cases.