State Attorney General Bob Ferguson on Friday announced that restaurant chain Jersey Mike’s will pay $150,000 to resolve a lawsuit over its use of no-poach provisions.
The company will not add provisions to new contracts and will remove provisions from all of its franchise contracts nationwide, benefiting thousands of workers across the country, according to Attorney General’s Office news release. Jersey Mike’s has 41 Washington locations, including two in Kent.
This resolves the first lawsuit by a state attorney general against a company for its use of no-poach clauses.
In 2018, Ferguson offered Jersey Mike’s the opportunity to sign a legally binding agreement to stop enforcing no-poach provisions, and remove them from existing franchise agreements. In exchange, the company would not have to pay any form of monetary penalty. Unlike 66 other corporate chains, Jersey Mike’s refused, and Ferguson filed a lawsuit against the company, according to the news release. The resolution reached Friday is the same that Ferguson offered to Jersey Mike’s in 2018, but it now requires the company to pay $150,000.
Jersey Mike’s is the 67th company to enter into a legally binding contract to end no-poach practices.
“No-poach practices are wrong – and illegal,” said Ferguson. “Jersey Mike’s could have saved time and money by doing the right thing and agreeing to a legally binding commitment to end these practices when we first approached them. Today’s resolution will benefit thousands of its workers nationwide.
“Corporations that refuse to eliminate no-poach clauses can expect a lawsuit from my office. This sends a message to companies like Jersey Mike’s who refuse to take my deal: you’ll end up paying for it.”
No-poach clauses appear in franchise agreements between owners of franchises and corporate headquarters. The clauses prohibit employees from moving among stores in the same corporate chain, a practice that economists believe stagnates wages.
Ferguson’s case against Jersey Mike’s was the first lawsuit Ferguson or any other state attorney general brought against a corporation for its use of no-poach clauses in franchise agreements. Jersey Mike’s previously filed a motion to dismiss Ferguson’s case against the company, but a court denied that motion in January.
As a result of the resolution, Jersey Mike’s will no longer include no-poach provisions in its franchise agreements, will not enforce no-poach provisions and will not re-insert no-poach provisions in its franchise contracts in the future. Jersey Mike’s also will pay the Attorney General’s Office $150,000, which the office will use for the recovery of costs and fees, as well as future enforcement efforts.
In January 2018, Ferguson’s Antitrust Division launched an investigation into no-poach clauses. In course of the investigation, the Attorney General’s Office found that Jersey Mike’s used no-poach language in its franchise contracts at its 41 Washington locations and estimated 1,343 locations nationwide.
During the investigation, Jersey Mike’s refused to remove no-poach language from its current and future contracts and enter into a legally binding contract with the Attorney General’s Office. In response, Ferguson filed a lawsuit against the company in October 2018. By that time, 30 corporate chains had signed legally binding agreements with the Attorney General to end the practice nationwide. The number of chains committed to ending the practice has since grown to 66, impacting more than 135,000 locations nationwide and benefiting millions of workers.
After Ferguson announced the lawsuit against Jersey Mike’s, the company’s general counsel and vice president told the media that the company did not want to participate in what the general counsel believed was a “publicity stunt.”
After the Attorney General’s Office began investigating Jersey Mike’s use of no-poach clauses, Jersey Mike’s claimed that it stopped enforcing the no-poach clauses in its franchise contracts. The company also began removing no-poach language from existing franchise agreements in Washington once Ferguson filed the lawsuit.
Though Jersey Mike’s began removing no-poach clauses shortly after the lawsuit, ceasing unlawful conduct does not prohibit the Attorney General from seeking penalties for previous unlawful conduct. In addition, Jersey Mike’s at the time had refused to affirmatively remove the no-poach clauses from its existing national contracts. Whether or not a company enforces these provisions, their existence in contracts remains unlawful.
In November 2018, the restaurant chain filed a motion to dismiss Ferguson’s lawsuit. A King County Superior Court judge denied that motion in January.
Ferguson continues to investigate and obtain legally enforceable agreements from companies in his initiative to eliminate no-poach clauses nationwide. Like Jersey Mike’s, corporate chains that do not agree to end the practice face a lawsuit from Ferguson’s office.
As of this month, Ferguson’s Antitrust Division has successfully worked to eliminate no-poach clauses at 67 companies nationwide with an estimated 136,000 locations. The changes benefit millions of workers across the U.S.