Theory and Evidence on Employer Collusion in the Franchise Sector

Alan B. Krueger; Orley Ashenfelter

doi:10.3368/jhr.monopsony.1019-10483

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Table 1

Franchise Agreements with and without a No-Poaching Clause by Industry and Percentage of Franchisors with a No-Poaching Agreement

	No-Poach Agreement
Industry	No	Yes	Total
Panel A: Number of Franchise Chains by Industry and No-Hire Agreement
Automotive	2	4	6
Baked goods	1	3	4
Beauty-related	4	4	8
Business-related	0	5	5
Child-related	2	1	3
Decorating & home decorating	0	2	2
Education-related	1	0	1
Frozen desserts	3	3	6
Health & fitness	5	6	11
Lodging	12	2	14
Maintenance services	5	8	13
Personnel services	0	2	2
Printing	2	0	2
Publications	1	0	1
Quick service restaurants	8	32	40
Real estate	6	1	7
Restaurants, sit-down	0	5	5
Retail food	3	3	6
Retail stores	7	4	11
Services, general	2	4	6
Travel	1	2	3
Total	65	91	156
Pearson’s chi-squared(₂₀) = 44.6	p-value = 0.001
Panel B: Percent with No-Hire Agreement by Industry
Automotive	33.3	66.7
Baked goods	25.0	75.0
Beauty-related	50.0	50.0
Business-related	0.0	100.0
Child-related	66.7	33.3
Decorating & home decorating	0.0	100.0
Education-related	100.0	0.0
Frozen desserts	50.0	50.0
Health & fitness	45.5	54.6
Lodging	85.7	14.3
Maintenance services	38.5	61.5
Personnel services	0.0	100.0
Printing	100.0	0.0
Publications	100.0	0.0
Quick service restaurants	20.0	80.0
Real estate	85.7	14.3
Restaurants (sit-down)	0.0	100.0
Retail food	50.0	50.0
Retail stores	63.6	36.4
Services, general	33.3	66.7
Travel	33.3	66.7
Total	41.7	58.3

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Table 2

No-Poach Clause Logit Estimates—Average Characteristics of Workers in Industry

Explanatory Variable	Mean [SD]	Has Agreement = 1
		(1)	(2)	(3)	(4)
Constant		-1.069^*	-1.543^*	3.694	-2.311
		(0.622)	(0.939)	(3.513)	(4.340)
New-hire rate	28.2	0.051^**			0.072^*
	[9.5]	(0.020)			(0.040)
Mean log hourly wage rate	2.39		-1.543^*		1.318
	[0.24]		(0.939)		(1.665)
Mean years of schooling	12.89			0.260	-0.195
	[0.93]			(0.260)	(0.254)
Pseudo R-squared		0.039	0.024	0.011	0.042

Notes: Sample size is 156 franchisors. Mean of dependent variable is 0.58. New-hire rate is percentage of workers in industry with one year or less of tenure. Standard errors allow for clustering at the two-digit CPS industry level. Statistical significance:
↵* p < 0.10,
↵** p < 0.05.

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Table 3

No-Poach Clause Logit Estimates—Franchise and Industry Characteristics

Explanatory Variable	Mean [SD]	Has Agreement = 1
		(1)	(2)	(3)	(4)	(5)
Constant		0.238	0.420	-0.026	-1.687^*	-1.524
		(0.298)	(0.467)	(0.278)	(0.956)	(1.045)
Age of franchisor	32.4	0.003				-0.005
	[16.1]	(0.008)				(0.009)
Franchise chain share (Percent of establishments)	7.58		-0.13			-0.002
	[14.0]		(0.018)			(0.002)
Industry franchise share (Percent of employment)	33.9			0.011	-0.011	-0.011
	[26.7]			(0.007)	(0.011)	(0.011)
New-hire rate	28.2				0.085^**	0.085^**
	[9.5]				(0.041)	(0.042)
Pseudo R-squared		0.0004	0.006	0.014	0.061	0.062
Sample size		156	150	150	150	150

Notes: Mean of dependent variable is 0.58. Franchise chain share is total of franchisor’s units as a percent of the number of establishments in six-digit NAICS industry. Industry franchise share is percent of workers in six-digit NAICS industry employed by a franchise. New-hire rate is percentage of workers in industry with one year or less of tenure. Standard errors allow for clustering at the two-digit CPS industry level. Statistical significance:
↵* p < 0.10,
↵** p < 0.05.

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Appendix Table 1

List of Franchises by Whether Contract Contains a No-Poaching Restriction

Franchise Contract Contains No-Poaching Restriction			Franchise Contract Does Not Contain No-Poaching Restriction
Brand	Year Founded	Total Units 2015	Brand	Year Founded	Total Units 2015
A&W	1950	629	7-Eleven	1964	7,812
AAMCO Transmissions	1963	643	ampm	1978	983
AFC	2002	3,423	Ace Hardware	1928	4,311
Aaron’s Sales & Lease Ownership	1983	1,905	Bimbo Foods Bakeries Distribution	1996	6,417
Ameriprise Financial	1999	6,437	Century 21	1972	2,204
Anago	1991	1,194	Chem-Dry	1978	2,034
Anytime Fitness	2002	2,123	Chester’s	2004	1,020
Applebee’s Neighborhood Grill & Bar	1988	1,878	Chick-fil-A	1987	1,966
Arby’s	1965	3,214	Coffee News	1996	512
Auntie Anne’s	1991	1,150	Cold Stone Creamery	1994	926
Baskin-Robbins	1948	1,066	Coldwell Banker	1982	2,356
Batteries Plus Bulbs	1992	674	Comfort	1981	1,721
Bricks 4 Kidz	2009	515	Cornwell Quality Tools	1996	592
Budget Blinds	1994	931	Courtyard by Marriott	1990	891
Buffalo Wild Wings	1991	1,135	Coverall	1985	7,690
Buildingstars	1999	623	DKI	1995	706
Burger King	1954	7,127	DQ Grill & Chill/Texas DQ	1962	2,984
Carl’s Jr.	1984	1,147	DQ Treat	1987	1,470
Cellairis	2006	531	Days Inn	1972	1,529
Church’s Chicken	1964	1,245	Do It Best	1997	3,097
Cinnabon	1990	750	ERA Real Estate	1972	522
Circle K	1995	3,769	Econo Lodge	1987	856
CleanNet	1987	2,588	Fairfield Inn by Marriott	1989	743
Comfort Keepers	1999	667	Fresh Healthy Vending	2010	1,939
Cruise Planners	1994	2,106	Godfather’s Pizza	1974	551
CruiseOne	1992	1,006	Good Neighbor Pharmacy	2008	2,995
Culligan	1945	560	Great Clips	1983	3,733
Culver’s Butter Burgers & Frozen Custard	1990	558	Hampton Inn by Hilton	1983	1,979
Curves	1995	1,262	Hardware Hank	1954	662
DaVi Nails	2008	504	Heaven’s Best	1983	1,131
Denny’s	1963	1,599	Hilton Garden Inn	1990	575
Domino’s Pizza	1967	5,272	Hot Stuff Pizza	1994	829
Dunkin’ Donuts	1955	7,200	Jazzercise	1982	7,015
Edible Arrangements	2001	1,095	KFC	1952	4,273
European Wax Center	2006	517	Keller Williams	1987	1,013
Express Employment Professionals	1985	706	Kuman	1983	1,495
FASTSIGNS	1986	543	Mateo Tools	1979	1,617
Fantastic Sams	1995	1,108	Mathnasium Learning Centers	2003	624
Firehouse Subs	1995	944	Merle Norman	1989	1,174
Five Guys Burgers and Fries	2002	1,215	Midas	1956	1,036
Frontier Adjusters	1959	685	Minuteman Press	1975	686
GNC	1987	4,304	Miracle-Ear	1984	1,299
H&R Block	1957	10,264	Motel 6	1996	1,208
Hardee’s	1961	1,766	Papa Murphy’s Take ‘N’ Bake Pizza	1990	1,495
Health Mart Pharmacy	1983	3,857	Pop-A-Lock	1995	526
Hissho	2013	827	Proforma	1985	630
Holiday Inn	1953	2,547	Quality Inn	1968	1,379
Home Instead Senior Care	1995	609	RE/MAX	1975	3,558
HomeVestors	1996	657	Regal Nails Salon & Spa	1997	807
Hungry Howie’s	1982	548	Residence Inn by Marriott	1984	669
IHOP	1960	1,453	Results! Travel	2000	661
Jackson Hewitt Tax Service	1986	6,232	Rodeway Inn	1990	513
Jamba Juice	1991	818	Snap Fitness	2003	1,034
Jersey Mike’s	1987	1,044	Snap-on	1990	3,425
Jiffy Lube	1979	1,915	Sotheby’s International Realty	2004	546
Jimmy John’s	1993	2,407	Subway	1968	27,129
Kona Ice	2007	675	Super 8	1975	1,651
La Quinta Inn	2000	876	SuperShuttle	1986	1,213
Lawn Doctor	1967	517	Supercuts	1988	2,429
Liberty Tax Service	1997	3,860	Sylvan Learning	1979	538
Little Caesars	1962	4,256	Taco Bell	1964	6,900
Long John Silver’s	1969	1,031	Tire Pros	1988	704
Mac Tools	2007	587	Vanguard Cleaning Systems	1984	2,840
Management Recruiters	1965	601	Vision Source	1996	3,262
Marco’s Pizza	1979	667	Visiting Angels	1998	508
Massage Envy	2003	1,127
McDonald’s	1955	14,251
Meineke Car Care Center	1972	801
Merry Maids	1980	986
Moe’s Southwest Grill	2001	638
Noble Roman’s Pizza	1997	2,466
Panera Bread	1991	1,906
Papa John’s	1986	3,290
Pizza Hut	1959	8,126
Planet Fitness	2003	1,117
Popeyes Louisiana Kitchen	1976	1,983
Quiznos	1983	667
Rita’s Ice-Custard-Happiness	1984	621
Rooter-Man	1982	538
ServiceMaster	1952	3,101
Servpro	1969	1,630
Smoothie King	1988	659
Sonic	1948	3,526
Sport Clips	1995	1,455
The Maids	1980	1,177
The UPS Store	1980	4,548
Tim Hortons	1984	756
Valvoline Instant Oil Change	1989	943
Wendy’s	1971	5,722
Wing Stop	1997	786
Zaxby’s	1994	726

Notes: Data provided by FRANdata. Number of Units includes both company-owned and franchised units.

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Appendix Table 2

Franchisers that Abandoned No-Poach Agreements as of June 2019

	Company	Date No-Poach Provision Removed/Abandoned	Source of Info
1	A&W	3/1/18	AOD Para 2.2
2	AAMCO	w/in 30-90 days of 5/1/2019	AOD Para 3.1.1–3.1.4
3	Anytime Fitness	10/16/18	AOD Para 3.1.1–3.1.4
4	Applebee’s	8/20/18	AOD Para 3.1.1–3.1.4
5	Arby’s	7/12/18	AOD Para 3.1.1–3.1.4
6	Auntie Anne’s	7/12/18	AOD Para 3.1.1–3.1.4
7	Dunkin Donuts Franchising LLC & its affiliate, Baskin-Robbins Franchising LLC	10/16/18	AOD Para 3.1.1–3.1.4
8	Batteries Plus LLC	12/5/18	AOD Para 3.1.1–3.1.4
9	Bonefish Grill, LLC	1/19/19	AOD Para 3.1.1–3.1.4
10	Budget Blinds, LLC	1st Q 2018	AOD Para 2.2
11	Buffalo Wild Wings International, Inc.	7/12/18	AOD Para 3.1.1–3.1.4
12	Burger King Corp.	9/13/18	AOD Para 3.1.1–3.1.4
13	Carl’s Jr. Restaurants LLC	7/12/18	AOD Para 3.1.1–3.1.4
14	Carrabba’s Italian Grill, LLC	1/14/19	AOD Para 3.1.1–3.1.4
15	Cajun Global LLC & Cajun Operating Co (Church’s Chicken)	8/20/18	AOD Para 3.1.1–3.1.4
16	Cinnabon Franchisor SPV LLC	7/12/18	AOD Para 3.1.1–3.1.4
17	Circle K (TMC Franchise Corp.)	1/1/16	AOD Para 2.2–2.3
18	Comfort Keepers (CK Franchising, Inc.)	12/5/18	AOD Para 3.1.1–3.1.4
19	Denny’s (DFO, LLC)	9/13/18	AOD Para 3.1.1–3.1.4
20	Domino’s Pizza LLC	10/16/18	AOD Para 3.1.1–3.1.4
21	Edible Arrangements, LLC	8/1/18	AOD Para 2.2
22	Einstein Bros. Bagels Franchise Corp.	4/1/18	AOD Para 2.2
23	Express Services, Inc. dba Express Employment Professionals	2/15/19	AOD Para 3.1.1–3.1.4
24	Famous Dave’s of America, Inc.	5/14/19	AOD Para 3.1.1–3.1.4
25	FASTSIGNS International, Inc.	4/1/18	AOD Para 2.2
26	Firehouse of America LLC	10/15/18	AOD Para 3.1.1–3.1.4
27	Five Guys Franchisor, LLC, an affiliate of Five Guys Enterprises, LLC	8/20/18	AOD Para 3.1.1–3.1.4
28	Frontier Adjusters, Inc.	11/27/18	AOD Para 3.1.1–3.1.4
29	General Nutrition Corp. dba GNC	12/20/18	AOD Para 3.1.1–3.1.4
30	IHOP Franchisor LLC & IHOP Restaurants LLC	8/20/18	AOD Para 3.1.1–3.1.4
31	Jack in the Box, Inc.	12/20/18	AOD Para 3.1.1–3.1.4
32	Jackson Hewitt, Inc.	12/20/18	AOD Para 3.1.1–3.1.4
33	Jamba Juice Co.	5/16/18	AOD Para 2.3
34	Jiffy Lube International, Inc.	12/20/18	AOD Para 3.1.1–3.1.4
35	Jimmy John’s Franchisor SPV, LLC	7/12/18	AOD Para 3.1.1–3.1.4
36	L&L Franchise, Inc.	2/5/19	AOD Para 3.1.1–3.1.4
37	La Quinta Franchising, LLC	12/5/18	AOD Para 3.1.1–3.1.4
38	Little Caesar Enterprises, Inc.	8/20/18	AOD Para 3.1.1–3.1.4
39	Maids, The (The Maids, International, Inc.)	2/15/19	AOD Para 3.1.1–3.1.4
40	Massage Envy Franchising, LLC	11/27/18	AOD Para 3.1.1–3.1.4
41	McDonald’s USA, LLC	3/1/17	AOD Para 2.2
42	Meineke Franchisor SPV LLC	5/14/19	AOD Para 3.1.1–3.1.4
43	Menchie’s Group, Inc.	12/20/18	AOD Para 3.1.1–3.1.4
44	Merry Maids, LP	12/5/18	AOD Para 3.1.1–3.1.4
45	Management Recruiters, International, Inc.	1/14/19	AOD Para 3.1.1–3.1.4
46	The Original Pancake House Franchising, Inc.	12/20/18	AOD Para 3.1.1–3.1.4
47	Outback Steak House of Florida, LLC	1/14/19	AOD Para 3.1.1–3.1.4
48	Panera LLC	8/20/18	AOD Para 3.1.1–3.1.4
49	Papa John’s International, Inc.	11/1/17	AOD Para 2.3
50	Pizza Hut LLC	9/13/18	AOD Para 3.1.1–3.1.4
51	Planet Fitness Franchising LLC	10/15/18	AOD Para 3.1.1–3.1.4
52	Popeye’s Louisiana Kitchen, Inc.	9/13/18	AOD Para 3.1.1–3.1.4
53	Qdoba Restaurant Corp.	5/14/19	AOD Para 3.1.1–3.1.4
54	Quiz Holdings LLC & QFA Royalties LLC (Quizno’s)	11/27/18	AOD Para 3.1.1–3.1.4
55	Sonic Franchising LLC	8/20/18	AOD Para 3.1.1–3.1.4
56	Sports Clips, Inc.	11/27/18	AOD Para 3.1.1–3.1.4
57	Tim Horton’s USA, Inc.	9/13/18	AOD Para 3.1.1–3.1.4
58	Valvoline Instant Oil Change Franchising, Inc.	10/16/18	AOD Para 3.1.1–3.1.4
59	Villa Pizza, LLC	5/14/19	AOD Para 3.1.1–3.1.4
60	Westside Pizza International, Inc.	2/15/19	AOD Para 3.1.1–3.1.4
61	Wingstop Restaurants, Inc.	9/13/18	AOD Para 3.1.1–3.1.4
62	Zeek’s Restaurants, Inc.	8/1/18	AOD Para 2.3