With the antitrust class action against Google, Apple, Intel and other Silicon Valley heavyweights nearly in the books ($300 million plus in settlements and millions more in defense fees later), it is time once again to ask what this settlement means for the continued use of clauses in merger and other types of agreements like nondisclosure agreements (NDAs) and confidentiality agreements that often restrict one party from soliciting or hiring the other’s employees?. The answer: Not much.
“No-hire/non-solicitation” provisions in transactional agreements, which are restrictions designed to make the asset being sold more attractive to buyers (e.g., as an ongoing business), can help ensure a successful sale. In NDAs and confidentiality agreements, these provisions facilitate the exchange of information during due diligence. Like any other restrictive covenant that is ancillary to a legitimate business purpose, as long as the restriction is reasonably limited in scope it should not raise concern under the antitrust laws. What matters is whether the restriction is reasonable in scope in terms of duration, territory, and product space or line of business.
A blanket “no-hire/non-solicitation” agreement can (and likely will) get you in trouble. Let’s not forget that ski makers Völkl and Tecnica recently settled charges brought by the Federal Trade Commission alleging that they agreed with each other not to solicit, recruit, or contract with any employee of the other to avoid bidding up the salaries paid to employees. One wonders how long it will take before private antitrust class action complaints are filed on behalf of their employees.
So, if you come across an understanding between competitors not to hire, or solicit each other’s employees that is unmoored from some broader agreement (transactional, NDA, or confidentiality agreement, for example), your alarm bells should start to go off.