The American fast-food industry is built on two pillars: cheap hamburgers and cheap labor.
As economists try to understand why wages have stagnated across the country’s economy, they are examining the cheap labor part of the equation closely. A few have zeroed in on an obscure clause buried in many fast-food franchise agreements as a possible contributor to the problem.
Some of fast-food’s biggest names, including Burger King, Carl’s Jr., Pizza Hut and, until recently, McDonald’s, prohibited franchisees from hiring workers away from one another, preventing, for example, one Pizza Hut from hiring employees from another.
The restrictions do not appear in a contract that employees sign, or even see. They are typically included in a paragraph buried in lengthy contracts that owners of fast-food outlets sign with corporate headquarters.
Yet the provisions can keep employees tied to one spot, unable to switch jobs or negotiate higher pay. A lack of worker mobility has long been viewed as contributing to wage stagnation because switching jobs is one of the most reliable ways to get a raise.
Defenders of the practice argue that the restaurants spend time and money training workers and want to protect their investment. But two lawsuits, filed this year against McDonald’s and Carl’s Jr.’s parent company, CKE Restaurants Holdings, contend that such no-hire rules violate antitrust and labor laws.
McDonald’s said its policies did not violate any laws. The company recently removed the language from its contract, and declined to say whether the lawsuits had played a role in that decision. CKE declined to comment.
The no-hire rules affect more than 70,000 restaurants — or more than a quarter of the fast-food outlets in the United States, said Alan B. Krueger, a Princeton University economist and a chairman of the Council of Economic Advisers in the Obama administration.
The provisions, he said, were “ubiquitous” among the companies and appeared to exist mainly to limit both competition and turnover, which can keep labor costs low.
Other industries also forbid franchisees from hiring one another’s workers. The practice is more common when turnover rates are high, according to research by Krueger and fellow Princeton economist Orley C. Ashenfelter. For example, health and fitness chains also have these clauses, but they are most prominent in the fast-food industry.
Abrams writes for the New York Times.