If you were to quantify all the searching, interviewing, and negotiating with potential employees, and the efforts to train and assist them to ensure their success, it would be clear that companies spend a lot of money to employ top talent. Protecting key talent from leaving your employ is, therefore, serious business.
One tactic for protecting talent that has entered the spotlight recently involves an agreement or understanding with one or more companies that each will avoid hiring or soliciting the other’s employees. Illuminated, this type of arrangement might cross the line when it comes to antitrust law. The Department of Justice (DOJ) has recently issued guidelines to human resources professionals to make that point clear.
According to the October 2016 DOJ guidelines, companies that might hire similar types of employees can be competitors in the employment marketplace. This is true whether those companies produce the same products or services or not. Between competing companies, it can be illegal to enter into agreements which
- Fix wages, either specifically or within a range, or
- Ban the solicitation or hiring of the other company’s employees.
Agreements between companies which ONLY contain these types of provisions are considered “per se” illegal. They are illegal without much more inquiry required. These “naked” violations are judged so quickly because they are not dressed in a larger transaction where they could be considered reasonably necessary in light of related, legitimate, business activity.
Importantly, the guidelines remind us that agreements don’t have to be in writing to exist. Even a verbal understanding on the same restrictions can trigger a violation.
What has changed?
In terms of the law, not much, if anything. Agreements that unreasonably restrict competition in a market have been illegal since the Sherman Act passed over a century ago. Here, the Department of Justice is just applying the law in the market for employees.
What is clear is that the DOJ has its eye on these firm-to-firm arrangements. What’s more, while traditionally the DOJ has chosen to bring only civil enforcement actions against violators, “[g]oing forward, the DOJ intends to proceed criminally against naked wage-fixing or no-poaching agreements.” This means that if an individual or company is caught participating in one of these agreements, either the individuals or the company might also face felony charges in addition to the civil investigation.
Are non-solicits illegal now?
On the flip side, not all restraints on soliciting or hiring individuals are anti-competitive. As suggested in the guidelines, restraints which are reasonably necessary to a larger, legitimate, business transaction are not per se illegal. They would be reviewable for their anti-competitive effect, if any.
The guidance also does not address non-solicitation or non-compete agreements in the individual context. This blog post won’t either, but suffice to say that the laws vary state to state. It is a topic that has recently been receiving national attention.
Though the DOJ’s guidance has not changed the principles of antitrust law, it is important to remember the following:
- Seek legal counsel whenever you are considering entering into an agreement limiting your right to hire or solicit employees. Do not enter into “naked” agreements of this sort.
- It is wise to keep hiring practices and procedures confidential. Avoid sharing them with competitors unless sharing is reasonably necessary for a legitimate transaction.
- You can enter into agreements orally, or through your conduct. Even discussions toward these types of agreements, or implicit understandings, can run afoul of the law.
- Review your contracts to ensure that any non-solicitation provisions are at least limited to what is reasonably necessary for the transaction they are a part of.
I also recommend reading the FAQ at the end of the guidelines themselves. You will find they are very helpful in understanding the application of the law. For more questions or comments, feel free to leave a note on this blog or contact me on Twitter.
Blayne, does this affect employment agreements as well?
No, the Department of Justice’s guidelines don’t necessarily address agreements in the company to employee context. It is aimed at company to company agreements.
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