A former Cinnabon employee in Washington can now move forward with a proposed antitrust class action suit over the company’s allegedly anticompetitive “no-poaching” agreements. These agreements are alleged to prevent franchises from hiring away workers from other Cinnabon franchises, thereby eliminating wage competition.
The plaintiff, a former Cinnabon franchise employee, had argued that Cinnabon’s arrangements prevented franchises from hiring away workers from other Cinnabon franchises, and as a result eliminated wage competition that could drive up employee salaries and benefits, and amounted to a “per se” violation of the Sherman Act. The plaintiff further argued that this “per se” violation deserved the ‘quick look’ treatment, and required no weighing of anticompetitive and procompetitive effects in the search for an unreasonable trade restraint, a just showing that the conduct occurred.
In a motion to dismiss, Cinnabon Franchisor SPV LLC’s argued that the chain and its franchises should be considered one entity, not multiple entities as required under the Sherman Act.
The Washington state federal judge rejected Cinnabon franchise’s motion to dismiss, but in his decision the judge also imposed the “rule of reason” analysis on the plaintiff.
Under the “rule of reason” standard, the plaintiff must prove that the Cinnabon franchise’s alleged agreements’ anticompetitive effects outweighed their procompetitive benefits and justifications. In his statement, the judge said “…the plaintiff has alleged sufficient facts in support of her claims. The plaintiff acknowledges that she has failed to allege sufficient facts to support a full rule of reason analysis.”
The judge cautioned that the plaintiff “does so at her own risk (and perhaps those she seeks to represent if she is unable to prevail under a ‘quick look’ rule of reason analysis.”
The judge also concluded that the plaintiff had sufficiently shown an “agreement, conspiracy, or combination” between multiple entities as required under the Sherman Act.
‘Quick look’ rules occur when even an observer with only a “rudimentary understanding of economics” applying the rule of reason could find that the conduct would have anticompetitive impacts on markets and customers.
According to the judge, the plaintiff had not yet met the burden of showing the anticompetitive effects of Cinnabon’s no-poaching agreements to observers with rudimentary economic understanding.
These no-poaching agreements within fast food franchises have come under heavy scrutiny in the last several months, after probes by state and federal antitrust officials. Those probes have already yielded a number of settlements between companies including Buffalo Wild Wings, McDonald’s, Jimmy John’s, Cinnabon, and Arby’s, and state attorney general offices.