Many employers use agreements (generally called restrictive covenants, more specifically “non-solicitation” or “non-competition” provisions) with employees to prevent them from working for competitors or taking valuable information, clients, or coworkers after separation. Although state law varies on how these agreements are interpreted and enforced, with the ability to pursue successful restrictive covenants with employees, employers also wonder if they can also enter into blanket “no poach” or “no hire” agreements with fellow employers that would prohibit them from stealing or employing each other’s employees.
But that would be a bad idea.
The U.S. Department of Justice (DOJ), through federal antitrust statutes, seeks to prohibit these types of “naked” no poach or no hire agreements as violative of prohibitions on monopolies and as unreasonable ways of restricting or controlling interstate commerce. In October 2016, the DOJ and the U.S. Federal Trade Commission (FTC) issued Antitrust Guidance for Human Resource Professionals,[1] informing employers that the DOJ intended to initiate criminal proceedings in relevant no poach cases.
Employers are “competitors” for these purposes, regardless of whether they sell the same goods or services, if they compete for the same type of employees. The DOJ and FTC noted several items which employers should avoid: 1) agreeing or exchanging specific information with another company about compensation and benefits, refusals to solicit/hire, or other terms and conditions of employment; 2) supporting not competing for similar employees; and/or 3) participating in meetings (e.g., trade or business groups) where the above topics are discussed and/or agreed upon.
In April 2018, the DOJ affirmed its goal of actively investigating and prosecuting companies entering into these “naked” agreements, which are, on their face, unlawful, and serve no other purpose but to prohibit the movement of employees. No poach language may only be legal in an agreement if reasonably necessary to further a larger legitimate collaboration between employers (for example, in staffing agreements or in the sale of a business).
And, consequences for entering into prohibited no poach agreements are high. In criminal cases, employers can face up to $100 million in fines, while individual HR professionals, management, and/or executives can face fines up to $1 million and up to ten years’ imprisonment.
As such, the DOJ has been busy chasing this priority in 2019, and North Carolina has been involved. Recently, in the U.S. District Court for the Middle District of NC, the DOJ submitted a statement arguing that an agreement between Duke University and UNC Chapel Hill prohibiting the poaching of one another’s medical school professors was likely per se illegal.[2] Additionally, in March, North Carolina was part of a coalition of 13 states and the District of Columbia that entered into agreements with Arby’s, Dunkin’, Five Guys, and Little Caesars, to prohibit the franchise corporations from continuing the use of no poach agreements, which required franchisees to agree not to solicit the employees of other franchisees (thereby impacting low wage and often uninformed workers).[3]
As no poach agreements are generally a no go, employers should take precautions to ensure they are not party to unlawful pacts by implementing compliance training with those involved in human resources or hiring and updating any corporate antitrust compliance programs so that no poach agreements or arrangements can be readily identified and prevented. Additionally, if you have concerns about employment contracts your business is using, please contact Soule Employment Law Firm at 984-242-0771.
[1] Available for download at https://www.justice.gov/atr/file/903511/download.
[2] See the DOJ’s Statement of Interest in Seaman v. Duke University, et al. at https://www.justice.gov/atr/case-document/file/1141756/download.
[3] See https://lrus.wolterskluwer.com/news/employment-law-daily/four-fast-food-franchise-corporations-agree-to-nix-no-poach-provisions/75150/.