Employers Beware: Time for a New “A-Poach”

by K&L Gates LLP
Contact

K&L Gates LLP

Senators Seek Legislation Deeming No-Poach Agreements Illegal

Following the U.S. Department of Justice (“DOJ”) Antitrust Division’s recent public reaffirmation of its commitment to prosecute “no-poach” agreements as criminal antitrust violations, Democratic lawmakers have shown their support by demanding that no-poach agreements be regarded as anticompetitive. Senators Elizabeth Warren (D-MA) and Cory Booker (D-NJ) recently introduced the first legislation in Congress designed to make no-poach pacts illegal, by providing workers the right to sue and claim damages. Historically, the DOJ and Federal Trade Commission (collectively, the “Agencies”) have taken issue with no-poach agreements, and their position is clear: “naked” agreements among employers not to hire each other’s employees or to fix wages and other terms of employment restrains competition in the market for employees, potentially resulting in per se violations of Section 1 of the Sherman Act. Now, Democratic lawmakers are taking significant steps of their own by introducing a bill that signifies an increasing concern about no-poach agreements and “monopsony power” — the ability of an employer to suppress wages below the efficient or perfectly competitive level of compensation.

No-poach pacts can involve agreements not to cold-call, solicit, or hire employees. Moreover, these agreements generally eliminate or limit a company’s or franchise owners’ ability to hire workers from other locations within the franchise. Monopsonist employers can possess bargaining power over their workers. As an example, as of 2016, none of the almost 2,000 Jiffy Lube franchisees are permitted to hire an individual who is currently employed, or was employed less than six months ago, at another Jiffy Lube franchise. [1] According to Senator Booker, “This is patently unfair and against the ideals of a so-called free market . . . . It’s anti-democratic, and it’s hurting people.” The barriers imposed by no-poach agreements can severely limit a worker’s ability to move freely among jobs and obtain higher wages and better benefits. Senators Warren and Booker believe that a more alarming repercussion of no-poach agreements is that because they are formed between entities such as a franchisor and franchisee, workers may be completely unaware of the limitations imposed on their mobility.

While most recognize that agreements to fix wages would run afoul of antitrust laws, no-poach agreements may not necessarily raise any anticompetitive or antitrust flags for an employer. However, employers need to be aware of guidance published by the Agencies in 2016 that explicitly states that “agreements among employers not to recruit certain employees…are illegal,” and cautions human resource professionals against entering into no-poach agreements or sharing competitively sensitive employment information with competitors. [2] Makan Delrahim, the Antitrust Division’s Assistant Attorney General, reaffirmed this message when he spoke at a 2018 conference where he indicated that the DOJ has been “very active” in assessing possible violations of antitrust law and will initiate criminal cases against offending employers in the coming months.

Elsewhere, the DOJ reached a settlement in 2010 with six high-tech giants for anticompetitive employee no-solicitation agreements akin to no-poach agreements. Later, some even became the subject of a no-poach class action lawsuit based on their agreement not to poach each others’ talent. This litigation ultimately ended in a 2015 settlement agreement that cost the companies $415 million. [3]

While not all no-poach agreements are necessarily illegal, a high standard exists for a court to find a no-poach agreement valid. Specifically, courts have found no-poach agreements legal if they are (i) ancillary to a larger, legitimate collaboration; (ii) reasonable in scope and duration; and (iii) reasonably necessary to further the interests of the collaboration. [4]

The recently introduced legislation and commitment to fight no-poach agreements, in combination with the Agencies’ shift in focus to pursuing no-poach agreements as criminal violations rather than civil violations, is significant in a number of ways. While the policy rationale behind their “no-poach approach” generally benefits employees and promotes unrestricted markets, employers may be detrimentally affected and left with fewer avenues to retain their talent. Opposing industry advocates argue that no-poach agreements are necessary for companies to protect the investments that they make in their personnel, such as training, and serve as a means to ensure that employees have the requisite skills to successfully deliver their products or services to consumers. For the time being, however, it is imperative that employers understand that the proposed legislation, combined with the Agencies’ activities, may thwart these efforts.

Given the renewed interest in the no-poach issue, employers need to remain attentive. Indeed, the fact that employers may face potential civil and criminal liability makes it imperative that employers take the necessary steps to ensure they do not violate the law. Among other initiatives, employers should assess whether they have no-poach agreements and evaluate them carefully. Employers should bear in mind that in some states, they may be able to protect their interests and investments in personnel by entering into non-compete agreements with their employees. Non-compete agreements that are appropriately tailored may provide employers with the protections they seek in a more legally defensible manner. Employers should also educate and train all employees with human resources responsibilities on antitrust laws and legislation. Finally, employers should think about consulting with counsel if considering entering into any type of no-poach agreement.


[1] A.B. Krueger & O. Ashenfelter, Theory and Evidence on Employer Collusion in the Franchise Sector [working paper], Princeton University & NBER (Sept. 28, 2017), http://dataspace.princeton.edu/jspui/bitstream/88435/dsp014f16c547g/3/614.pdf..

[2] Department of Justice Antitrust Division and Federal Trade Commission, Antitrust Guidance for Human Resource Professionals (Oct. 20, 2016), https://www.justice.gov/atr/file/903511/download.  

[3] In re: High Tech Employee Antitrust Litigation, 2014 WL 6478776 (N.D. Cal. Sep. 3, 2015).

[4] In Eichorn v. AT&T Corp., 248 F.3d 131, 146 (3d. Cir. 2001), the Third Circuit held that an agreement whereby all AT&T affiliates were not to hire or solicit any employees from a company that it sold to Texas Pacific Group for a period of eight months after the sale was lawful under Section 1 of the Sherman Act. The Third Circuit ultimately found that the agreement was a “legitimate ancillary restraint on trade,” its primary purpose was to ensure that Texas Pacific Group could retain the skilled services of the company’s employees, and that any restraint on the plaintiffs’ ability to seek employment at AT&T or its affiliates was incidental to the sale of the company. Id.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© K&L Gates LLP | Attorney Advertising

Written by:

K&L Gates LLP
Contact
more
less

K&L Gates LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.