The Department of Justice Antitrust Division (DOJ) filed its first major no-poach case in 2010, against a group of Silicon Valley companies that had agreed not to cold call one another’s employees. The companies agreed to end this arrangement and abstain from other similar practices restricting competition for talent. Many of the companies faced a private class action on behalf of 64,000 high-tech employees, most of whom settled in October 2013.
In October 2016, DOJ and the FTC issued the first-ever Antitrust Guidance for Human Resources Professionals, alerting HR professionals to potential antitrust violations in employment. The Guidance said that naked no-poach and wage-fixing agreements are per se illegal whether entered into directly or through an intermediary like a trade association. So, if such an agreement is separate from or not reasonably necessary to a larger legitimate collaboration between employers, it will be deemed illegal without an inquiry into its competitive effects.
In addition to urging the adoption of safeguards to prevent no-poach and wage-fixing agreements and the sharing of information about terms of employment, the Guidance put companies on notice that DOJ would proceed criminally against such agreements going forward.
DOJ brought its first-ever indictments for wage-fixing and no-poach agreements in December 2020 and January 2021. Another set of criminal indictments followed in March 2021. More industries, employers, and practices are likely to be subject to scrutiny. In the latest case, DOJ indicted a health care staffing company and a former manager who allegedly agreed with a competitor not to recruit or hire school nurses from one another’s ranks for Las Vegas public schools.
The first two criminal cases also involved relatively small companies in the healthcare industry: a physical therapist staffing company and senior employees at outpatient medical care centers.
The guidance that no-poach agreements were not only unlawful but criminal launched a flurry of private litigation and state-level investigations into potential violations. In July 2018, the Washington State Attorney General announced that seven fast food chains had agreed, under threat of enforcement action, to end a nationwide practice of prohibiting franchisees from hiring or recruiting employees from other franchisees. Standard terms in franchise agreements prevented the owner of one franchise from recruiting or hiring employees of another franchise. By October 2018, that office had reached similar settlements with 100 corporate chains, extending beyond restaurants to businesses offering entertainment, massage, painting, and other services via the franchise model.
At the same time DOJ has aggressively pursued no-poach cases, it has also argued for a more lenient and flexible approach in certain contexts. Through statements of interest in private litigations, the agency has advocated against application of the per se rule to restrictions on labor competition within franchises.
In March 2019, DOJ filed a statement of interest favoring defendant fast food chains in several class actions. This filing outlines some of the most colorable defenses for no-poach cases in the franchise context. Citing the law’s more lenient approach to restrictions on competition within a single brand and to vertical restraints imposed by franchisors, DOJ argued the employees’ claims should be assessed under the rule of reason. It further argued against treating the no-hire franchise provisions as a hub-and-spoke conspiracy, which would also be per se unlawful. DOJ emphasized the ancillary restraints doctrine, under which an agreement is exempt from the per se rule if it is ancillary to a separate, legitimate venture between the competitors and reasonably necessary to make the main transaction more effective in accomplishing its purpose.
As antitrust enforcers and the plaintiff lawyers continue the pursuit of agreements in restraint of competition for labor and talent, more and more companies may be brought into the fold. No industry is immune from scrutiny in this area, and the cases to date make clear that there is no market power or size threshold for investigations and prosecutions.
Companies can limit exposure by updating compliance programs to be sure executives and HR professionals understand the antitrust laws apply not just to sales and marketing, but also to employment activities. If there is reason to believe that the company or any of its subsidiaries may have entered into agreements limiting labor competition, these concerns should be investigated.