Department of Justice Renews Efforts to Prohibit Employee Non-Poaching Agreements
The Trump Administration has reaffirmed the U.S. Department of Justice and the Federal Trade Commission's jointly-issued Antitrust Guidance for Human Resources Professionals, first issued on October 20, 2016. The 2016 guidance contains a Q&A section that answers many basic employment-related questions. The DOJ and FTC also issued a quick reference card that summarizes some of the information in a convenient format. As part of that guidance, the DOJ and FTC concluded that "naked" agreements between companies (as distinguished from provisions in a larger, legitimate collaboration) to refuse to solicit or hire that other company's employees (so-called anti-poaching or "no-poach" agreements) are per se illegal under antitrust laws. The DOJ indicated in the guidance that it intended to proceed with both civil and criminal enforcement against "naked" anti-poaching agreements.
In early 2018, Makan Delrahim, the DOJ’s assistant attorney general for the antitrust division, indicated continued civil and criminal enforcement under the Trump Administration against anti-poaching agreements. True to Mr. Delrahim’s word, in April 2018, the DOJ announced that it reached a proposed settlement with Knorr-Bremse AG and Westinghouse Air Brake Technologies Corporation (Wabtec), two of the world’s largest rail equipment suppliers, to resolve a department lawsuit alleging that the companies had for years maintained unlawful agreements not to compete for each other’s employees in violation of the Sherman Act, 15 U.S.C. § 1.
In particular, the DOJ alleged that Knorr and Wabtec reached agreements not to solicit, recruit, hire without prior approval, or otherwise compete with one another for employees. For example, the DOJ claimed that in a letter dated January 28, 2009, a director of Knorr Brake Company wrote to a senior executive at Wabtec’s headquarters, "[Y]ou and I both agreed that our practice of not targeting each other’s personnel is a prudent cause for both companies. As you so accurately put it, 'we compete in the market.'" The DOJ’s complaint sought primarily injunctive relief precluding the defendants from enforcing or entering into "no-poach agreements" as well as other unspecified relief to "prevent reoccurrence of the alleged violations and to dissipate the anticompetitive effects of the illegal no-poach agreements entered into by Defendants." Violations of the Sherman Act can subject individuals to incarceration for up to 10 years, and carry per-violation fines of up to $1 million for individuals and up to $100 million for companies.
As part of the parties’ proposed final judgment, the defendants were:
- 1. Prohibited from entering into, maintaining, or enforcing any no-poach agreement or no-poach provision
- 2. Required to appoint an antitrust compliance officer
- 3. Required to post notice of the action in a trade publication and on a web site linked to the corporate websites
- 4. Required to notify the DOJ of any violations of the judgment
- 5. Required to cooperate fully and truthfully with the United States in any investigation or litigation examining whether or alleging that the defendants entered into a no-poach agreement with any other person.
The proposed final judgment specifically provided that it did not prohibit defendants from entering into, maintaining, or enforcing a reasonable agreement not to solicit, recruit, or hire employees that is ancillary to a legitimate business collaboration. However, such agreement needed to be in writing and signed; identify, with specificity, the agreement to which it is ancillary; be narrowly tailored to affect only employees who are reasonably anticipated to be directly involved in the agreement; and contain a specific termination date or event.
The DOJ as part of its April 2018 announcement warned, that the action "is part of a broader investigation by the antitrust division into naked agreements not to compete for employees—generally referred to as no-poach agreements." Therefore, employers should anticipate continued enforcement by the DOJ against employers' anti-poaching agreements.
Not only do such agreements put companies at risk of governmental enforcement actions, but they can also place them at risk of costly civil litigation by affected employees. Indeed, a lawsuit was recently filed against Knorr and Wabtec on behalf of a proposed class of employees, which reference the settlement with the government, and alleged that the two companies conspired and unlawfully agreed to restrain competition by entering into "no-poaching" agreements that prohibited each from hiring the other's employees, thereby decreasing employee compensation and limiting employee mobility. The complaint noted that the DOJ's action and the proposed settlement did not seek to compensate the employees, and that without the class action the employees affected by the agreement could not receive compensation for their alleged injuries.
Employers who are acting under anti-poaching agreements or who wish to enter into anti-poaching agreements ancillary to a legitimate business collaboration (such as an acquisition, joint venture, consulting or other business-to-business agreement that involves the sharing of, e.g., confidential information about employees) should consider legal counsel to ensure that the agreements are in accordance with the principals set forth by the DOJ.
For more information on the Antitrust Guidance for Human Resources Professionals, please contact Sean Colligan, Steven Katras, Dan Oberdorfer, Kristin Berger Parker or the Stinson Leonard Street contact with whom you regularly work.