The second largest consumer tax preparer in the United States has just been hit with a lawsuit filed by former employees alleging a “no-poach” conspiracy between the company and its franchisees, according to a complaint filed in New Jersey federal court.
In the suit, the former Jackson Hewitt employees seek to represent any person who worked at one of the tax company’s locations between January 2000 and December 2018. This proposed class action suit is seeking treble damages, attorney fees, and an injunction that would prohibit the company from using agreements that prevent employees from moving between Jackson Hewitt locations going forward.
In the complaint, the former employees allege the Jackson Hewitt franchise agreements required franchisees to agree to not hire one another’s employees or employee candidates. The employees allege that the conspiracy limited opportunities for mobility and compensation for employees, who were themselves not parties to the agreements.
The company started including a “no-poach” provision in its franchise agreements in 2000. In 2015, the company began including a “recruiting fee” that gave it the right to charge a franchisee a penalty for hiring an employee from another Jackson Hewitt location.
The plaintiffs contend that the purpose of these clauses was to discourage franchisees from hiring employees of the company, reducing transparency within the company and keeping wages low and stagnant in an industry that was already highly specialized.
This is not the first time allegations of this kind have been made against Jackson Hewitt. A similar case was previously filed against Jackson Hewitt in New Jersey court, but it was dropped in January 2019.
Several other notable franchises have come under fire in the last year over similar no-poach agreements, including many in the restaurant industry, like McDonald’s, Cinnabon, and Arby’s. In the fall of 2018, eight national restaurant chains agreed to drop their no poaching agreements shortly after 10 states announced they would be investigating these practices.
The focus on no-poaching provisions in franchise agreements will likely continue to be in the spotlight for the foreseeable future and will serve as a continuation of the struggle between franchise companies and the employees of their franchisees. This struggle has been highlighted over the last few years as a result of the NLRB’s “joint employer” decisions. For now, franchisors should take a hard look at their franchise agreements and speak with counsel about the best approach given the current climate.
