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Anti-Poaching Agreements: The Good, the Bad and What’s to Come

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By Holly Marie Wilson

Retail, Hospitality, and Entertainment Facilities Liability-Spring 2019 Newsletter
April 18, 2019

In recent years, there has been a notable trend against the enforceability of anti-poaching agreements, a once common occurrence in the retail and hospitality industry. Anti-poaching agreements are typically defined as agreements between two or more companies not to compete for each other’s employees. This can be as simple as neighboring fast food franchisors agreeing not to hire each other’s employees to formal contracts between Silicon Valley tech giants. Anti-poaching agreements typically prevent the contracting parties from cold-calling, soliciting for employment or employing the other company’s employees.

Under today’s legal climate, anti-poaching agreements are considered “naked” and in violation of antitrust laws, if they are not reasonably necessary to any separate or legitimate business collaboration between the employers. The United States Department of Justice (“DOJ”) has stated that naked wage-fixing or anti-poaching agreements are per se illegal under existing antitrust laws. In addition to released statements, the DOJ has also brought official enforcement actions against large corporations such as Apple, Google, Ebay and Adobe for engaging in such anti-poaching agreements. In re High-Tech Emple. Antitrust Litigation, 985 F.Supp.2d 1167, 1188 (N.D.Cal.2013).

The use of anti-poaching agreements has benefitted employers for years. Newly hired employees are required to receive training and participate in an onboarding process, which is usually expensive and time-consuming. With anti-poaching agreements, employers can protect their investment in existing employees. Additionally, these types of agreements also help employers retain talented employees who might otherwise be sought after by competing companies.

Employees, however, argue that these policies create a lack of competition in the job market, deprive them of job opportunities and the ability to negotiate better terms of employment. There have also been multiple suggestions that anti-poaching agreements are harmful to the economy.

Under the Sherman Antitrust Act, 15 U.S.C. §1, “every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.” Some states have concluded that companies who participate in anti-poaching agreements are indeed preventing employees from obtaining positions with other companies, which is in violation of 15 U.S.C. §1. California’s stance against the use of anti-poaching agreements is well known. Under California law, almost all forms of non-competes (including anti-poaching agreements) are automatically void. NuVasive, Inc. v. Miles, C.A. No. 2017-0720-SG, 2018 Del. Ch. LEXIS 329 (Sep. 28, 2018).

Other courts around the country have collectively acknowledged a few exceptions to the enforceability of anti-poaching agreements by applying the “rule of reason test.” Under this test, courts must consider, under all the circumstances, whether “the challenged acts are unreasonably restrictive of competitive conditions” in the relevant market. See, Eichorn v. AT&T Corp, 248 F.3d 131, 138 (3d Cir.2001). When determining an agreement’s reasonableness, one must analyze factors such as (1) the facts peculiar to the business in which the restraint is applied; (2) the nature of the restraint; (3) its effects; (4) the history of the restraint; and (5) the reasons for its adoption. Id., at 139, quoting United States v. Topco Assocs., 405 U.S. 596, 92 S.Ct. 1126, 31 L.Ed.2d 515 (1972).

Although there are limited exceptions to the use of anti-poaching agreements, the DOJ has clearly put employers on notice that it intends to zealously enforce the prohibition against anti-poaching agreements.

Additionally, Senator Cory A. Booker sponsored the End Employer Collusion Act in 2018. This Act would make it unlawful for “any entity to enter into a restrictive employment agreement, or to enforce or threaten to enforce a restrictive employment agreement.” End Employer Collusion Act, S.2480, 115th Cong. (2018). Under this legislation, individuals would also be able to bring a civil action for actual and punitive damages against entities that enter into or threaten to enforce restrictive employment agreements. Id.

Moving forward, business owners should take note of this changing legal landscape. Existing anti-poaching agreements should be re-examined and, if considering entering into a new agreement, it is strongly recommended that you seek review of the agreement from legal counsel.