No-Poaching Clauses in Franchise Contracts, Anticompetitive or Efficiency Enhancing?

47 Pages Posted: 13 Apr 2023

See all articles by Francine Lafontaine

Francine Lafontaine

University of Michigan at Ann Arbor - Stephen M. Ross School of Business; University of Michigan at Ann Arbor - Department of Economics

Saattvic Saattvic

Sauder School of Business, University of British Columbia

Margaret E. Slade

University of British Columbia (UBC)

Date Written: September 09, 2024

Abstract

No–poaching clauses (NPCs) have recently come under scrutiny due to their potentially anti– competitive impact on wages. However they can also enhance efficiency. We use data from the US chain restaurant industry to assess the effect that such clauses have on wages and we find robust evidence of a negative impact. Specifically, the legal cases, proposed legislation, and negative attention surrounding NPCs, which led many chains to remove such clauses from their contracts, caused wages in those chains to rise by about 5% relative to chains that did not have NPCs. We show that the impact of removal is greater for franchisors with larger shares of the job ad market, which is a measure of the job opportunities that are denied to their employees under NPCs. We also find that the effect of the clauses on the wages of managers is not statistically different from the effect on the wages of workers. We attribute these consequences to the removal of frictions and barriers to labor mobility.

Keywords: No–Poaching Clauses, Efficiency Enhancing, Anticompetitive Impact, Franchising, Chain Restaurants

JEL Classification: J31, J43, J63, K21, L43, L83

Suggested Citation

Lafontaine, Francine and Saattvic, Saattvic and Slade, Margaret E., No-Poaching Clauses in Franchise Contracts, Anticompetitive or Efficiency Enhancing? (September 09, 2024). Available at SSRN: https://ssrn.com/abstract=4404155 or http://dx.doi.org/10.2139/ssrn.4404155

Francine Lafontaine

University of Michigan at Ann Arbor - Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109-1234
United States
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University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States

Saattvic Saattvic

Sauder School of Business, University of British Columbia ( email )

2053 Main Mall
Vancouver, British Columbia
Canada
7783220709 (Phone)

Margaret E. Slade (Contact Author)

University of British Columbia (UBC) ( email )

6000 iona Drive
Vancouver, British Columbia BC V6T 1L4
Canada
7788280371 (Phone)

HOME PAGE: http://https://economics.ubc.ca/profile/margaret-slade/

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