It’s the holiday season, but franchise lawyers may find little in recent events to celebrate. The challenges just keep on coming!

Most recently, we’ve been challenged by California’s AB5 legislation and Dynamex decision, the DOJ’s brief foray into challenging “no poach” provisions and the State of Washington’s energetic embrace of that campaign. Unfortunately, recent developments are not encouraging.

On the mildly positive side the DOJ’s antitrust chief testified in hearings before the House that no poach provisions can protect franchise owners’ investment in training, which is beneficial to franchisees. There’s little to indicate that the state of Washington will be swayed by the DOJ’s pro-competitive view of no poach clauses, however. In a written statement the Assistant AG for the State of Washington confirmed that its “goal is to end no-poach practices. Period.” The only other piece of mildly positive news is that Uber and Lyft are moving forward with a ballot proposal aimed at reversing Dynamex, but the proposal is directed to gig workers.

The disappointing news far outweighs the very dim bright spots. New Jersey is the latest state to introduce new AB5-type legislation; that happened a little over a week ago. Also on the AB5 front, the Ninth Circuit rejected Jan-Pro’s bid for rehearing in the Dynamex case. State and City attorneys in California, San Francisco and Oakland petitioned for a rehearing of Dynamex as well, but took a decidedly different position than Jan-Pro, arguing for an extension of the ABC test to include franchising. Their position statements suggest that the franchise community can expect governmental action to aggressively enforce AB5, particularly in the franchise industry, when it goes into effect in January.

Just to pour on the challenges, the FTC and Congress have been encouraged to take regulatory and/or legislative action to prohibit non-competes in certain circumstances. State AGs have urged the FTC to issue regulations to declare “abusive . . . non-compete clauses as an ‘unfair method of competition’ and per se illegal under the FTC act for low wage workers or where the clause is not explicitly negotiated.” [1]  While the FTC Act does not provide a private right of action, such a declaration may support a baby FTC claim under state law in a private civil action.

Meanwhile, state and federal bills to limit non-competes have been multiplying. Several states have passed laws prohibiting low wage workers from signing non-competes, including New Hampshire, Maine and Maryland. In October, the proposed Workforce Mobility Act was reintroduced in Congress; if enacted, it could establish a nationwide standard for the enforcement of non-competes. The Bill largely tracks the California approach, essentially barring non-competes, except in the context of business sales or partnership dissolution. Needless to say, if it gains traction, the Bill is at best problematic in the franchise context.

So, Happy Holidays?

[1] November 15, 2019 letter from Attorneys General of Minnesota, California, Delaware, DC, Illinois, Maryland, Maine, Iowa, New Mexico, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, Virginia, Washington, and Wisconsin to Chairman of the FTC.