H&R Block’s ‘no-poach’ hiring practices under fire from lawsuit, state investigation

A lawsuit claims H&R Block systematically suppressed wages in its tax offices through “no-poach” clauses in contracts that govern stores owned by franchisees rather than the company itself.
A lawsuit claims H&R Block systematically suppressed wages in its tax offices through “no-poach” clauses in contracts that govern stores owned by franchisees rather than the company itself. Neil Nakahodo

Weeks after a former employee sued H&R Block alleging harms she suffered under its “no-poach” hiring practices, the Kansas City-based tax firm also faces a Washington state investigation into the same issue.

No-poach hiring practices have been widespread among fast-food companies. They generally prohibit franchise operators from hiring the employees of any other franchise operator in the chain.

Several states’ attorneys general began in July to challenge no-poach clauses in the franchise contracts of many fast-food chains.

On Wednesday, Washington Attorney General Bob Ferguson’s office confirmed it is investigating H&R Block along with many other companies identified in an academic study as using no-poach clauses in franchisee contracts. A spokeswoman in Ferguson’s office declined to discuss the inquiry into H&R Block’s practices.

More than three dozen companies with franchise restaurants and stores have now signed formal agreements with Ferguson’s office to end their use of no-poach clauses nationwide. The list includes McDonald’s, Pizza Hut, Applebee’s, IHOP, Denny’s, Burger King and Cinnabon.

An H&R Block spokeswoman declined to provide information about the company’s current practices for the roughly one third of Block tax offices that are owned and run by franchisees. She would neither confirm nor deny an earlier report by The Washington Post that had cited an email from an H&R Block spokeswoman saying the company had agreed to stop the practice.

The lawsuit against H&R Block came late last month from Melissa Ramsey, who had been managing an H&R Block tax office in Fairway when it was shut down. She naturally sought work at other Block offices, the lawsuit said.

“They refused to talk to her,” said Ramsey’s attorney, Rick Paul. “Because of that clause, they wouldn’t even talk to her.“

The lawsuit said that since 2009, H&R Block has included a no-poach clause in the standard contract that governs the the roughly 3,300 Block tax offices owned and run by franchisees. It also said H&R Block followed a no-poach policy by avoiding employees of franchise offices when hiring for the nearly 6,700 tax offices H&R Block itself operates.

Block’s policy means tax office employees have paid dearly — including taking lower wages — because they weren’t able to market their skills, some specific to working at H&R Block, to the places most interested in those skills, namely other H&R Block offices, the lawsuit said.

Ramsey seeks class action status to represent all affected Block employees who worked there from Jan. 1, 2009, to May 10, 2018.

The H&R Block spokeswoman said the company is reviewing the lawsuit but does not comment on litigation.

Ramsey’s claims and Washington State’s inquiry hit just as H&R Block is working to fill thousands of tax professional, manager, receptionist and other tax office jobs for the coming tax season.

A hidden clause

Although no-poaching clauses hit the news last summer, they have existed largely undetected for years.

Even now, however, workers whose pay or promotions may have been thwarted by such agreements likely don’t know because the barrier is hidden inside the franchise agreements.

Workers don’t see the franchise agreements or know about the no-poach clauses to complain about them, said a spokeswoman with the Massachusetts attorney general’s office that began investigating the practice in the fast-food industry last summer.

Some companies have fought back against government and private challenges to their hiring practices.

Washington’s attorney general Ferguson sued Jersey Mike’s Franchise Systems Inc. and many franchisees in mid-October, citing a “no-poach provision” in the chain’s franchise agreements.

Jimmie John’s Enterprises Inc. has been defending itself from a former employee’s lawsuit filed in January that claimed the company’s franchisees operate under an agreement not to “solicit, recruit, or hire each other’s employees.” In 2016, it had settled a complaint by the New York attorney general involving non-compete agreements covering employees.

Little Caesar Enterprises was sued in September over no-poach provisions, and Auntie Anne’s was sued in August over claims of anti-poaching agreements governing franchisees.

Several lawsuits against three railway equipment companies were combined into one federal lawsuit in Pennsylvania. The U.S. Department of Justice previously had taken action against the railway equipment companies, but these were separate businesses rather than franchises that are part of a chain.

Hurting workers’ wages

Ramsey’s lawsuit said no-poaching benefited H&R Block and its franchisees by “restricting competition for employees in the market and artificially suppressing wages.”

Specifically, the lawsuit claimed, seasonal tax preparers working inside H&R Block offices earned less than half the national average wage for tax preparers reported by the U.S. Bureau of Labor Statistics. Receptionists at Block tax offices earn 28 percent less than the national average for receptionists, it said.

Robert Einhorn, a Florida attorney who often represents franchisees in claims against fast-food chains, said no-poaching clauses may have limited impact on fast-food workers who generally can seek better jobs or pay at other chains. He said that may be less true for H&R Block employees with more specialized skills.

“In my mind, there’s a difference between H&R Block versus McDonald’s,” Einhorn said. “If they know how to cook a burger at McDonald’s, they probably could do it at a Burger King and some other places, too.”

Ramsey’s lawsuit claimed H&R Block “routinely enforced” the no-poach clause in its franchisees’ contracts. The suit cited an analysis of 65,000 H&R Block tax professionals that showed 70 percent were affiliated with only one tax office. These employees, it said, were compliant with the no-poaching rule.

An additional 26 percent, the lawsuit said, were listed with more than one office, but all of the offices were owned by H&R Block and still complying with the no-poaching clause. About 4 percent were affiliated with multiple offices of one franchise owner, still complying.

Less than 1 percent “appear to be non-compliant,” the suit said, by working at both a company-owned tax office and a franchise tax office.

One way H&R Block would “enforce and perpetuate the conspiracy” was with its job application, the lawsuit said. The first question, it said, asked whether the applicant ever worked for H&R Block or any Block franchise.

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Mark Davis writes about business for The Kansas City Star with attention to Sprint, investing, the economy and scams. He has been a winner and finalist in national competitions held by the Society for Advancing Business Editing and Writing.