February 01, 2019 | Legal News
Trends Emerge from Agreements to Discontinue “No-Poaching” Provisions
The Washington State Attorney General has coined the term “Assurance of Discontinuance,” or “AOD,” as he continues his initiative to eliminate no-poach and no-solicitation restrictions from franchise agreements. Since the investigation commenced almost a year ago, 50 franchise brands have entered AODs with the State of Washington (according to the Washington AG’s press releases). The infographic above presents a short timeline of some of those AODs.
We’ve reviewed them all. While the AODs vary from brand to brand, in general each AOD requires a franchisor to:
- remove the no-poaching provisions from future franchise agreements (some require the franchisor to amend existing agreements to remove the no-poach provision);
- agree to not enforce no-poaching provisions in existing agreements; and
- notify current franchisees of its entry into the AOD.
The Washington AG seems not to care how narrow the no-poach restriction may be. For example, we’ve seen efforts to eliminate no-poach provisions:
- where a franchisor only restricts franchisees from hiring its employees (rather than other franchisees’ employees),
- where the provision only restricts the soliciting and hiring of managers or other highly skilled/trained employees, or
- where the franchisees can hire the franchisor’s employees if they make a payment to cover replacement and training costs.
Franchisors should revisit whether to include or remove no-poaching and no-solicitation provisions in their franchise agreements during the 2019 FDD renewal process. Additionally, if contacted by the Washington AG, franchisors must understand they have options with respect to the AOD and should evaluate external risks (including the possibility that private class actions may follow, as has been happening).
Click here to read additional background on the no-poach issue.