Horizontal restraints refer to agreements or coordinated actions between competitors at the same level of the market structure—such as between two franchisees—that limit competition. These restraints are generally illegal under antitrust law unless they are justifiable and narrowly applied.
in franchising occur when two or more businesses operating at the same level of the supply chain—typically franchisees within the same brand or competing brands—coordinate to limit competition. Examples include price fixing, territory allocation, group boycotts, or agreements not to hire each other’s employees (no-poach agreements). These arrangements are scrutinized under U.S. antitrust laws, particularly the Sherman Antitrust Act, and are often considered per se illegal unless they are clearly pro-competitive and justifiable. While franchisors usually manage system-wide restrictions (vertical restraints), franchisees must avoid entering into unauthorized horizontal agreements that could trigger legal or regulatory action. The franchise agreement may also include clauses forbidding franchisees from engaging in activities that would result in unlawful horizontal restraints.
Also See Vertical Restraints
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The concept of horizontal restraints has been central to U.S. antitrust law since the early 20th century. Landmark cases such as United States v. Topco Associates and FTC v. Superior Court Trial Lawyers Association helped define the scope of illegal collaboration among competitors. In franchising, horizontal restraints became more relevant as multi-unit and multi-brand franchisees began negotiating and interacting across systems. Recent antitrust scrutiny has focused on “no-poach” clauses—agreements between franchisees not to recruit each other’s employees—which have been the subject of class-action lawsuits and government enforcement. Courts generally view horizontal restraints harshly because they undermine the competitive process.
| Aspect | Horizontal Restraints | Vertical Restraints |
|---|---|---|
| Parties Involved | Businesses at the same level (e.g., franchisee-to-franchisee) | Businesses at different levels (e.g., franchisor-to-franchisee) |
| Common Examples | Price fixing, territory allocation, no-poach agreements | Exclusive territories, supplier mandates, pricing controls |
| Legal Treatment | Often per se illegal under antitrust law | Evaluated under the “rule of reason” standard |
| Risk Level | High risk of legal exposure for all parties involved | Generally permitted if they promote brand consistency and competition |
| Purpose | Often restricts competition between similar businesses | Intended to maintain brand standards and customer experience |
| Regulatory Focus | Scrutinized by FTC and DOJ for anti-competitive behavior | Monitored but typically allowed if not overly restrictive |
Horizontal restraints are agreements or coordinated actions between businesses at the same competitive level—often franchisees—that reduce competition. These practices are generally unlawful and can lead to severe legal consequences. Franchisees must avoid any behavior that might constitute or suggest a horizontal restraint, and franchisors should monitor their systems to prevent such conduct and uphold compliance with antitrust regulations.
