What was Carls' obligation under the settlement agreement in the Larry Rice lawsuit regarding franchise agreements in Colorado?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
n 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-solicitati
Source: Item 3 — LITIGATION (FDD pages 21–24)
What This Means (2024 FDD)
According to the 2024 Carls FDD, the Larry Rice lawsuit, filed on January 15, 2019, alleged that certain provisions in Carls' franchise agreements violated federal and state anti-trust statutes by restricting the ability of franchisees or company-owned stores from soliciting or hiring employees of other franchisees or company-owned stores. The complaint sought to certify a class of franchisee employees in Colorado and recover treble damages for alleged underpayment of wages from July 12, 2014, to the present.
Under the settlement agreement reached around April 1, 2019, Carls had several obligations. First, Carls was required to pay Larry Rice $2,500 and attorneys' fees in the aggregate amount of $7,500. Second, Carls was obligated to amend its franchise agreements with the Colorado franchisee named in the lawsuit to remove non-solicitation/no-hire provisions. Finally, Carls 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.
This settlement indicates that Carls has taken steps to address concerns about potentially anti-competitive clauses in its franchise agreements. For a prospective franchisee, this means that the franchise agreement in Colorado should not contain clauses that restrict the hiring of employees from other Carls locations. This could provide more flexibility in staffing and reduce potential legal challenges related to employee solicitation.