81 F.4th 699
7th Cir.2023Background
- McDonald’s franchise agreements historically included broad no‑poach clauses barring franchises (and corporate outlets) from hiring employees of other franchises or McDonald’s corporate restaurants for the length of employment plus six months.
- Plaintiffs (Deslandes and Turner), former franchise employees, sued under Section 1 of the Sherman Act, alleging the clauses suppressed wages by restricting worker mobility.
- The district court rejected a per se challenge, treating the clause as ancillary to otherwise procompetitive franchise agreements, and dismissed the complaint under the Rule of Reason for failing to plead market power; plaintiffs declined to amend and the court dismissed with prejudice.
- On appeal plaintiffs argued they need not plead market power and that the restraint is per se unlawful; McDonald’s defended the ancillary‑restraint justification and the district court’s market‑power ruling.
- The Seventh Circuit held the complaint plausibly alleged a horizontal agreement (so per se analysis was not foreclosed) and that ancillary‑restraint is an affirmative defense requiring factual and economic development; it vacated the dismissal and remanded for further proceedings (including reconsideration of class issues).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the no‑poach clause is a per se unlawful horizontal restraint | Clause is a naked horizontal agreement among competitors that eliminates competition for labor | Clause is ancillary to franchise agreements and justified by the procompetitive expansion of the franchise system | Court: Complaint plausibly alleges a horizontal agreement; ancillary restraint is an affirmative defense that must be proved, so per se analysis cannot be foreclosed at pleading stage; remand for further inquiry |
| Whether the complaint must plead market power to survive | Market power is obvious | Rule of Reason requires pleading market power; complaint lacked it | Court: Rule of Reason claims require market‑power allegations, but that does not defeat a plausible per se / naked‑restraint claim; district court erred to dismiss per se theory solely for lack of market‑power allegations |
| Whether employees of a single chain constitute the relevant labor market | Workers at McDonald’s form the relevant market (monopsony) | Labor market is broader and local; workers easily switch among quick‑service employers | Court: Treating a single chain as a labor market is implausible given worker mobility and the many nearby quick‑service employers; market‑power pleading failure supports Rule of Reason dismissal but not a per se bar |
| Remedy and procedural posture (dismissal with prejudice; class issues) | Plaintiffs sought remand, discovery, and class certification | Defendants argued dismissal proper | Court: Vacated dismissal with prejudice; remanded for further factual and economic analysis; district court may revisit class certification in light of remand |
Key Cases Cited
- NCAA v. Alston, 141 S. Ct. 2141 (2021) (antitrust law protects competition in labor markets; monopsony recognized)
- Bell Atlantic v. Twombly, 550 U.S. 544 (2007) (plausibility standard for complaints)
- Ohio v. American Express Co., 138 S. Ct. 2274 (2018) (Rule of Reason requires consideration of market power)
- Palmer v. BRG of Georgia, Inc., 498 U.S. 46 (1990) (naked agreements among competitors can be per se unlawful)
- Polk Bros., Inc. v. Forest City Enterprises, Inc., 776 F.2d 185 (7th Cir. 1985) (ancillary‑restraint doctrine)
- Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210 (D.C. Cir. 1986) (ancillary restraint requires restraint to be subordinate and collateral)
- Broadcast Music, Inc. v. CBS, 441 U.S. 1 (1979) (ancillary‑restraint analysis; caution against subsuming rule‑of‑reason)
- Klor’s, Inc. v. Broadway‑Hale Stores, Inc., 359 U.S. 207 (1959) (horizontal competitor agreement principles)
- Gomez v. Toledo, 446 U.S. 635 (1980) (complaints need not anticipate affirmative defenses)
- Texaco Inc. v. Dagher, 547 U.S. 1 (2006) (ancillary‑restraint framework requires legitimate collaboration)
- Blackburn v. Sweeney, 53 F.3d 825 (7th Cir. 1995) (excessive scope/duration undermines ancillary‑restraint defense)
- Schering‑Plough Corp. v. FTC, 402 F.3d 1056 (11th Cir. 2005) (restraint must relate to the objective and not be so broad as to extinguish competition)
- Craftwood II, Inc. v. Generac Power Systems, Inc., 920 F.3d 479 (7th Cir. 2019) (procedural point that affirmative defenses need not be anticipated in complaint)