Which states and jurisdictions were involved in the settlement agreement with Dunkin Brands, Inc. concerning no-poaching provisions, and does this settlement have any implications for Carls?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
People of the State of California v. Dunkin' Brands, Inc., (California Superior Court, Los Angeles County, Case No. 19STCV09597, filed on March 19, 2019.)* On March 14, 2019, our affiliate,
Dunkin Brands, Inc. ("DBI"), entered into a settlement agreement with the Attorneys General of 13 states and jurisdictions concerning the inclusion of "no-poaching" provisions in Dunkin' restaurant franchise agreements. The settling states and jurisdictions included California, Illinois, Iowa, Maryland, Massachusetts, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, Vermont, and the District of Columbia. A small number of franchise agreements in the Dunkin' system prohibit Dunkin' franchisees from hiring the employees of other Dunkin' franchisees and/or DBI's employees. A larger number of franchise agreements in the Dunkin' system contain a no-poaching provision that prevents Dunkin' franchisees and DBI from hiring each other's employees. Under the terms of the settlement, DBI agreed not to enforce either version of the no-poaching provision or assist Dunkin's franchisees in enforcing that provision. In addition, DBI agreed to seek the amendment of 128 franchise agreements that contain a no-poaching provision that bars a franchisee from hiring the employees of another Dunkin' franchisee. The effect of the amendment would be to remove the no-poaching provision. DBI expressly denied in the settlement agreement that it had engaged in any conduct that had violated state or federal law and, furthermore, the settlement agreement stated that such agreement should not be construed as an admission of law, fact, liability, misconduct, or wrongdoing on the part of DBI. The Attorney General of the State of California filed the above-reference lawsuit in order to place the settlement agreement in the public record, and the action was closed after the court approved the parties' stipulation of judgment.
(6) New York v. Dunkin' Brands, Inc. (N.Y. Supreme Court for New York County, Case No. 451787/2019, filed September 26, 2019). In this matter, the N.Y. Attorney General ("NYAG") filed a lawsuit against our affiliate, DBI, related to credential-stuffing cyberattacks during 2015 and 2018. The NYAG alleged that the cyber attackers used individuals' credentials obtained from elsewhere on the Internet to gain access to certain information for DD Perks customers and others who had registered a Dunkin' gift card. The NYAG further alleged that DBI failed to adequately notify customers and to adequately investigate and disclose the security breaches, which the NYAG alleged violated the New York laws concerning data privacy as well as unfair trade practices. On September 21, 2020, without admitting or denying the NYAG's allegations, DBI and the NYAG entered into a consent agreement to resolve the State's complaint. Under the consent order, DBI agreed to pay $650,000 in penalties and costs, issue certain notices and other types of communications to New York customers, and maintain a comprehensive information security program through September 2026, including precautions and response measures for credential-stuffing attacks.
Other than these six actions, no litigation is required to be disclosed in this Item.
ITEM 4 BANKRUPTCY
No bankruptcy is required to be disclosed in this Item.
ITEM 5 INITIAL FEES
Development Fee
If you enter into a Development Agreement, you must pay CJR a Development Fee of $10,000 for each Franchised Restaurant you agree to develop at the time you sign the Agreement. The Development Fee is not refundable. If you execute a Franchise Agreement for a new Franchised Restaurant pursuant to the Development Agreement, the $10,000 Development Fee associated with this new Franchised Restaurant will be credited against the Initial Franchise Fee for such Franchised Restaurant.
Source: Item 3 — LITIGATION (FDD pages 21–24)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, Dunkin Brands, Inc. (DBI), an affiliate of Carls, entered into a settlement agreement with the Attorneys General of 13 states and jurisdictions regarding "no-poaching" provisions in Dunkin' restaurant franchise agreements. The states and jurisdictions involved in the settlement include California, Illinois, Iowa, Maryland, Massachusetts, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, Vermont, and the District of Columbia. Under the terms of the settlement, DBI agreed not to enforce either version of the no-poaching provision or assist Dunkin's franchisees in enforcing that provision. In addition, DBI agreed to seek the amendment of 128 franchise agreements that contain a no-poaching provision that bars a franchisee from hiring the employees of another Dunkin' franchisee, with the effect of removing the no-poaching provision. DBI expressly denied any violation of state or federal law in the settlement agreement, which stated that the agreement should not be construed as an admission of law, fact, liability, misconduct, or wrongdoing on the part of DBI. The Attorney General of the State of California filed the lawsuit to place the settlement agreement in the public record, and the action was closed after court approval.
Additionally, Arby's Restaurant Group, Inc. (ARG), another affiliate of Carls, entered into a settlement agreement with several states concerning similar no-poaching provisions. The states involved in the ARG settlement include California, Illinois, Iowa, Maryland, Massachusetts, Minnesota, New Jersey, New York, North Carolina, Oregon, and Pennsylvania. Under this settlement, ARG agreed to remove the disputed provision from its franchise agreements, not to enforce it in existing agreements, and to seek amendments to remove the provision from existing agreements in the applicable states. The states instituted actions to enforce the settlement agreement through various legal methods.
The FDD states that these actions against affiliates have no impact on Carls or its brand, nor do they allege any unlawful conduct by Carls. However, prospective Carls franchisees should be aware of the legal scrutiny surrounding no-poaching agreements in franchising and how these settlements may reflect broader regulatory trends. While the settlements themselves do not directly affect Carls, the legal landscape concerning employee solicitation and hiring practices could evolve, potentially influencing franchise operations and agreements in the future.