Burger King Franchises, like NFL Franchises, Must Compete

Almost all (99%) Burger King restaurants are independently-owned. Franchisees are neither agents nor employees of the Burger King Corporation (Burger King), and Burger King and the franchisees owe one another no fiduciary duties. And yet, Burger King entered into a “No-Hire Agreement” with each of its franchisees, providing that no Burger King restaurant would hire the employee of Burger King restaurant within six months of the employee having left employment at the first restaurant.

This reminds Eleventh Circuit’s Judge Rosenbaum, who really warms to the opportunity to talk about football, of Am. Needle, Inc. v. Nat’l Football League , 560 U.S. 183 (2010). In that case, SCOTUS found that the 32 NFL football teams had violated the Sherman Antitrust Act by agreeing that they would all grant Reebok an exclusive license to market their merchandise. You guys are supposed to be competing, SCOTUS said (I’m paraphrasing). Not just on the field, but also in the marketing of consumer goods that incorporate marks and intellectual property associated with your team.

So here as well. As a result, in Arrington v. Burger King Worldwide, Inc., the U.S. Court of Appeals for the Eleventh Circuit reversed the District Court’s dismissal of the suit and allowed the case to proceed. The District Court erred because it mistakenly treated Burger King and its franchisees as one corporate entity.

The case was brought by a class of Burger King employees subject to the No Hire Agreement between 2010 and 2018. The Court proceeds with a discussion of the relationship between Burger King and its franchisees. It highlights all the ways in which the franchisees are independent of the mother ship and all the ways in which they compete.

The District Court found that there could be no conspiracy between Burger King and its franchisees because they are all part of one economic enterprise. That fact rendered them incapable of acting in concert with one another. The Court returns to its NFL analogy to prove the contrary. Each franchise, like each NFL team, acts independently, especially with respect to hiring decisions. The fact that they all enforced the No Hire Agreement suggested coordination in restraint of trade.

I like the disposition of the case, but I am not persuaded that Burger King could never be treated as a principal for one of its franchisees nor that there could never arise fiduciary duties between Burger King and its franchisees. Burger King takes an up-front fee plus 8.5% of gross revenues. It can terminate the franchise for any act of default, which includes violation of the No Hire policy. That sure does look like some indication of an agent acting on behalf of and subject to the control of a principal in connection with the challenged provision. But what do I know? I would think it would be possible both to recognize that there can be a fiduciary relationship between each franchisee and the franchise and also that antitrust law would prohibit the franchisees from engaging in concerted action with their shared principal in restraint of trade.

Burger King argued that the Court could still affirm on different grounds, but that would have required the Court to determine matters best resolved by the District Court. The dismissal was reversed and the case remanded for further proceedings.