A case from the U.S. Court of Appeals for the Seventh Circuit has brought antitrust analysis, usually focused on consumer goods, to bear on something altogether different: labor. In Deslandes v. McDonald’s United States, Judge Frank Easterbrook found that a fast food franchise’s “non-poaching” agreements might violate the antitrust laws by restricting competition for labor, and sent the case back to the district court that had dismissed it for a second look.

Antitrust cases usually come up in the consumer products context, where suppliers of goods are accused of anticompetitive behavior like price-fixing or tying agreements. Take the case that the Department of Justice just filed against Apple, or (more fun) one brought by California consumers desiring to purchase the iconic Hermes Birkin handbag (at $10,000 a pop, or more for exotic leathers). The shoppers filed a class action challenging the boutique’s alleged practice of limiting access to the prestige accessory by requiring would-be Birkin-bag-buyers to first pony up with purchases of scarves, shoes, and so forth: an alleged “tying” scheme in violation of the Sherman Antitrust Act.

But back to Big Mac. When Deslandes was filed, every McDonald’s franchise agreement had an anti-poaching clause: each franchise operator promised not to hire any person employed by a different franchise, or by McDonald’s itself, until six months after the last date that person had worked for McDonald’s or another franchise. Solicitation of such employees also was prohibited.

When Leinani Deslandes discovered that she was barred from taking a better-paying position with a rival McDonald’s outlet, she filed suit seeking relief under Section 1 of the Sherman Antitrust Act. She argued that the no-poach clause violated the Sherman Act because it held down the price of labor by reducing competition for fast-food workers, limiting the market for their skills. An experienced burger-flipper who knew how to do things Ronald’s way could not migrate to a better-paying job at another franchise where her acquired skills might command higher wages—at least, not without being sidelined for half a year.

The district court rejected the plaintiff’s argument, finding the no-poach clause was not a naked restraint but only ancillary to each franchise agreement—and, as every new restaurant expands output, the restraint was justified because it kept prices low for consumers. Case dismissed. 

Deslandes appealed to the Seventh Circuit and, in this writer’s humble opinion, had the good fortune to draw a panel including Judge Frank Easterbrook, an esteemed jurist who has spent his long career at the intersection of law and economics, a neighborhood regularly frequented by antitrust.

Although all-too-commonly invoked by one competitor to hobble another in a particular marketplace, the antitrust laws were devised to promote consumer welfare, a point the late, great Robert H. Bork elegantly hammered in The Antitrust Paradox. Remanding Deslandes, Easterbrook wrote that antitrust law isn’t only concerned with competition in markets for outputs, like phones or handbags. Inputs—like labor—matter, too. Protecting worker welfare isn’t that much of a stretch. And keeping consumer prices low through suppression of wages isn’t a good look. As Judge Easterbrook put it:

People who choose to work at McDonald’s or one of its franchises acquire business-specific (or location-specific) skills. Employees may choose to work for less than their marginal product in order to compensate the employer for the training. In a competitive market, workers recover these investments as their wages rise over time, in response to their greater productivity. But if McDonald’s specifies a limited number of classifications of workers (something the complaint also alleges), that may delay promotion and frustrate workers’ ability to recoup their investments in training. One way to obtain a higher salary, after paying for one’s own training through lower wages, is to seek employment at another similar business where the skills can be put to use at the market wage. Deslandes alleges that this is what she tried to do, only to be blocked by the no-poach clause. And if this is what the no-poach agreement does—if it prevents workers from reaping the gains from skills they learned by agreeing to work at lower wages at the outset of their employment—then it does not promote output. It promotes profits, to be sure, as franchises capitalize on workers’ sunk costs. But it does not promote output and so cannot be called “ancillary” in the sense antitrust law uses that term.

The luxury-goods consumers leading the charge against Hermes aren’t a particularly sympathetic lot. And Apple, though dominant, isn’t the only phone in town. But the McDonald’s workers deserve better, Judge Easterbrook seems to be saying. McDonald’s petitioned for Supreme Court review but certiorari has been denied. Now the ball is in the district court, and we can look forward to round two.

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