Assemblyman PEDRO MEJIA
District 32 (Bergen and Hudson)
Prohibits no-poaching agreements in franchise arrangements.
CURRENT VERSION OF TEXT
An Act concerning franchise arrangements and employment restrictions and amending P.L.1971, c.356.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. Section 7 of P.L.1971, c.356 (C.56:10-7) is amended to read as follows:
7. It shall be a violation of this act for any franchisor, directly or indirectly, through any officer, agent or employee, to engage in any of the following practices:
a. To require a franchisee at the time of entering into a franchise arrangement to assent to a release, assignment, novation, waiver or estoppel which would relieve any person from liability imposed by this act.
b. To prohibit directly or indirectly the right of free association among franchisees for any lawful purpose.
c. To require or prohibit any change in management of any franchisee unless such requirement or prohibition of change shall be for good cause, which cause shall be stated in writing by the franchisor.
d. To restrict the sale of any equity or debenture issue or the transfer of any securities of a franchise or in any way prevent or attempt to prevent the transfer, sale or issuance of equity securities or debentures to employees, personnel of the franchisee, or spouse, child or heir of an owner, as long as basic financial requirements of the franchisor are complied with, and provided any such sale, transfer or issuance does not have the effect of accomplishing a sale or transfer of control, including, but not limited to, change in the persons holding the majority voting power of the franchise. Nothing contained in this subsection shall excuse a franchisee's obligation to provide prior written notice of any change of ownership to the franchisor if that notice is required by the franchise.
e. To impose unreasonable standards of performance upon a franchisee.
f. To provide any term or condition in any lease or other agreement ancillary or collateral to a franchise, which term or condition directly or indirectly violates this act.
g. To prohibit a franchisee from employing or seeking to employ an individual who is at the time or was previously employed by the franchisor or any other franchisee of the franchisor.
(cf: P.L.1999, c.45, s.1)
2. Section 10 of P.L.1971, c.356 (C.C.56:10-10) is amended to read as follows:
10. Any franchisee may bring an action against its franchisor for a violation of this act in the Superior Court of the State of New Jersey to recover damages sustained by reason of any violation of this act and, where appropriate, shall be entitled to injunctive relief. Such franchisee, if successful, shall also be entitled to the costs of the action including, but not limited to, reasonable attorney's fees.
Any employee of a franchisor or franchisee may bring an action against the franchisor or franchisee for a violation of subsection g. of section 7 of P.L.1971, c.356 (C.56:10-7) in the Superior Court of the State of New Jersey to recover damages sustained by reason of the violation, and where appropriate, shall be entitled to injunctive relief. Such employee, if successful, shall also be entitled to the costs of the action including, but not limited to, reasonable attorney’s fees.
(cf: P.L.1971, c.356, s.10)
3. This act shall take effect on the 30th day next following enactment.
This bill makes it a violation of the “Franchise Practices Act” for a franchisor to prohibit franchisees from employing or seeking to employ an individual who is at the time or was previously employed by the franchisor or any other franchisee of the franchisor. Many franchise arrangements contain certain covenants that restrict the recruitment or hiring of individuals that are employed by other franchisees in the same chain. These covenants, also referred to as “no-poaching agreements,” are prevalent within the restaurant and fast food industry.
Under the bill, any employee of a franchisor or franchisee may bring an action for a violation of the prohibition in court to recover damages sustained and may also be entitled to injunctive relief. An employee bringing a successful action against a franchisor or franchisee will also be entitled to costs of the action.
Although proponents of no-poaching agreements assert that the agreements protect employer investment in the training and professional development of employees, the employees of these fracnhises are often prevented from increasing their wages, hours, and other benefits because of the lack of employee mobility that comes with the no-poaching agreements. Moreover, the employees who are prohibited from moving within a franchise are often low-wage workers who do not have knowledge of the employment prohibition when they commence work.
Limits on worker mobility may be a factor in wage stagnation because the agreements limit job opportunities. The purpose of this bill is to create greater labor market competition by prohibiting the use of no-poaching agreements by franchisors.