Earlier this year, the Department of Justice’s Antitrust Division (DOJ) issued the Antitrust Guidance for Human Resource Professionals (DOJ Guidelines), which signaled for the first time that DOJ would “proceed criminally against naked wage-fixing or no-poaching agreements.” “No-poaching” or wage fixing agreements are a defense against employees leaving their companies to work for competitors in tight markets. However, companies that are not careful and enter into these agreements could face substantial liability, even criminal liability. By way of example, in 2015, Google, Apple, Adobe, and Intel settled a lawsuit for $415 million for having an agreement not to hire the others’ employees.
You might wonder why DOJ would consider this an antitrust issue. From their perspective, workforce mobility forces employers to pay wages at market rate for their services.
So when is a company at risk? According to DOJ, it does not matter whether the agreement is informal or formal, written or unwritten, spoken or unspoken. It violates antitrust laws if an agreement is a contract not to interfere with or set employee salaries or other terms of compensation or if it agrees to refuse to solicit or hire another company’s employees. With DOJ’s clear intent to clamp down on no-poaching agreements, employers need to be more aware and cautious when entering agreements with competitors.
However, no-poaching or non-solicitation agreements are necessary to protect trade and the economy. The DOJ Guidelines also advise that entering into no-poaching agreements may be lawful to the extent they are reasonably necessary to a larger legitimate collaboration between employers. This legitimate business reason could be necessary to protect companies seeking to do business together or with a common client where such a relationship would not be realistic without some assurance that the companies would not lure the others’ employees away during the engagement. Given DOJ’s direction, best practice is to carefully evaluate the agreements you may currently have in place to ensure they do not run afoul of the DOJ Guidelines. Going forward, make sure to check any subcontract or agreement with a potential competitor to ensure there is no basis for any concerning non-solicitation requirements.
About the Author: Nichole Atallah is a partner with PilieroMazza and heads the Labor & Employment Law Group. She may be reached at firstname.lastname@example.org.