Besides monetary payment, what other key term was included in the settlement agreement regarding the Carls litigation?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
14, 2022.
(2) Ashlie Harris v. CJ Star, LLC, Carl's Jr. Restaurants LLC, and DOES 1-10, (United States District Court, Eastern District of Washington, Spokane Division, Case No 2:18-cv-00247, filed August 3, 2018). On August 3, 2018, Ashlie Harris, a former employee of a Carl's Jr. franchisee, filed a lawsuit in the federal district court for the Eastern District of Washington. The plaintiff alleged that certain provisions in the applicable franchise agreement between us and our franchisees violate federal and state anti-trust statutes as they allegedly restrict the ability of our franchisees or company-owned stores from soliciting or hiring the employees of other of our franchisees or company-owned stores. The complaint sought to certify a class of franchisee employees in the state of Washington and recover treble damages stemming from
alleged underpayment of wages for current and former employees located in the state of Washington from July 12, 2014 to present. We denied that the provisions violate any law and filed a Motion to Dismiss the case. On or about April 1, 2019, the parties reached an agreement to settle the litigation with the following terms: (a) Defendants will pay Harris $5,000 and attorneys' fees in the aggregate amount of $20,000, (b) CJR has obtained amendments of the existing franchise agreements with Washington franchisees to remove non-solicitation/no-hire provisions, to the extent such provisions existed in the first place, and (c) CJR agreed not to enforce the disputed provision in existing agreements with Washington franchisees. The Court granted the parties' stipulated motion to dismiss the case on April 23, 2019.
(3) Larry Rice v. By The Rio, LLC, Carl's Jr. Restaurants LLC, and DOES 1-10, (United States District Court, District of Colorado, Case No 1:19-cv-00129-STV, filed January 15, 2019). On January 15, 2019, Larry Rice, a former employee of a Carl's Jr. franchisee, filed a lawsuit in the federal district court for the District of Colorado. The plaintiff alleged that certain provisions in the applicable franchise agreement between us and our franchisees violate federal and state anti-trust statutes as they allegedly restrict the ability of our franchisees or company-owned stores from soliciting or hiring the employees of other of our franchisees or company-owned stores. The complaint sought to certify a class of franchisee employees in the state of Colorado and recover treble damages stemming from alleged underpayment of wages for current and former employees located in the state of Colorado from July 12, 2014 to present. On or about April 1, 2019, the parties reached an agreement to settle the litigation with the following terms: (a) Defendants will pay Rice $2,500 and attorneys' fees in the aggregate amount of $7,500, (b) CJR will amend its franchise agreements with the Colorado franchisee named in the lawsuit to remove non-solicitation/nohire provisions, and (c) CJR agreed not to enforce the disputed provision in existing agreements with Colorado franchisees. The Court granted the parties' stipulated motion to dismiss the case on April 23, 2019.
Source: Item 3 — LITIGATION (FDD pages 21–24)
What This Means (2024 FDD)
According to the 2024 Carls FDD, in addition to monetary payments, the settlement agreements included amendments to franchise agreements and agreements not to enforce certain provisions.
In the case of Ashlie Harris v. CJ Star, LLC, Carls agreed to obtain amendments of existing franchise agreements with Washington franchisees to remove non-solicitation/no-hire provisions, to the extent such provisions existed, and agreed not to enforce the disputed provision in existing agreements with Washington franchisees. In a similar case, Larry Rice v. By The Rio, LLC, Carls agreed to amend its franchise agreements with the Colorado franchisee named in the lawsuit to remove non-solicitation/no-hire provisions, and agreed not to enforce the disputed provision in existing agreements with Colorado franchisees.
These types of agreements are significant for prospective franchisees because they address concerns about potential anti-trust violations related to restrictions on hiring employees from other franchisees or company-owned stores. The removal of these provisions could provide franchisees with more flexibility in staffing their restaurants. It also signals a willingness from Carls to address legal challenges related to franchise agreement terms and to adapt its agreements in response to legal and regulatory pressures.