Employee no-poaching agreements face legal pressure
Does your company have agreements, formally or informally, with competitors to not hire each other’s employees? Those “no-poaching agreements” could trigger criminal prosecution by the United States Department of Justice or litigation from any State’s attorney general.
This week’s news included the headline about several fast food companies, after being threatened by litigation from the Washington State Attorney General, agreeing to eliminate policies to not hire fellow franchisee’s employees.
And the federal government’s law enforcement agency has publicized its intention to target such agreements among competitors.
In October 2016, the Antitrust Division of the Department of Justice and the Federal Trade Commission published their “Antitrust Guidance for Human Resource Professionals.” https://www.justice.gov/atr/file/903511/download. The Antitrust Guidance encouraged HR professionals to “implement safeguards to prevent inappropriate discussions or agreements with other firms seeking to hire the same employees.” It specifically did not address restrictive covenants between an employer and employee, such as a non-compete clause, but rather, focused on agreements between competitors.
Under the antitrust laws, the federal government can pursue criminal prosecution against both the company and individual employees or executives. And a person injured by an illegal agreement among potential employers can pursue a civil suit and recover treble damages.
A few years ago, the DOJ filed civil enforcement actions against technology companies that entered into no-poaching agreements with competitors, including eBay and Intuit, Lucas Film and Pixar, and Adobe, Google, and Intel. Those cases arose out of agreements by each company not to cold call each other’s employees, and two cases also included agreements not to hire the competitor’s current employees. All three cases resulted in consent judgments in which the technology companies agreed to cease these practices.
In the Antitrust Guidance, the federal government announced the DOJ’s intent to pursue no-poaching agreements. The DOJ has kept its promise.
Specifically, in April 2018, the DOJ filed a civil antitrust lawsuit against Knorr-Bremse AG and Westinghouse Air Brake Technologies, the world’s largest rail equipment suppliers. The lawsuit alleges that the companies honored a no-poach agreement from 2009 through 2015. The claim was based on the Sherman Act, which prohibits any “contract, combination . . ., or conspiracy, in restraint of trade or commerce.” 15 U.S.C. § 1. The companies settled the matter by agreeing to an injunction for seven years and notifying their employees of the settlement’s terms.
In May 2018, the deputy assistant general of the DOJ Antitrust Division stated that more no-poaching prosecutions are coming. Barry A. Nigro, Jr. made this comment in his keynote speech at the Antitrust in Healthcare Conference co-sponsored by the American Bar Association and American Health Lawyers Association, leading some to conclude that the promised prosecutions may focus on the healthcare industry. He stated that “few, if any, segments of our economy merit higher enforcement priority when it comes to antitrust enforcement” than healthcare. “We believe it is important that we use our criminal enforcement authority to police these markets, and to promote competition for all Americans seeking the benefits of a competitive marketplace.”
On July 12, 2018, fast food chains agreed to cease restricting work from individuals seeking employment from other branches of the same chain for higher pay. Companies reaching this agreement with the Washington State Attorney General to avoid litigation
include Jimmy John’s, Arby’s, Cinnabon, Auntie Anne’s, McDonald’s, Buffalo Wild Wings, and Carl’s Jr.
With similar timing, the Attorneys General of ten other states, including California, New York, New Jersey, and Illinois, announced that they are investigating “no-poach” agreements within franchise agreements of Five Guys, Panera Bread, Burger King, Little Caesars, Dunkin’ Donuts, and other fast food chains.
In light of the government’s focus on no-poaching agreements and the risks that companies face, employers should consider conducting an internal investigation to determine whether any of their employees have engaged in such unlawful conduct. Companies should also review their internal policies and, if a policy is not already in place, develop a human resources policy consistent with the Antitrust Guidance issued by the DOJ and FTC.
Bruce Samuels is a partner at Lewis Roca Rothgerber Christie and has obtained significant victories for clients over his 22 years with the firm. He managed the firm’s 120 lawyer Litigation Section from 2014-2018 and has successfully handled business litigation and intellectual property litigation, including cases involving trade secrets, restrictive covenants, trademark infringement, unfair competition, and fraudulent transfers.