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No-Poaching Agreements—Another Bad Approach To Non-Competition Agreements – Antitrust, EU Competition



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Employers hate losing good workers in this sellers’ market
for employees. Such business needs often spawn reliance on
non-competition/non-solicitation agreements sometimes designed to
discourage workers from leaving.

State legislatures correctly view such overreaching as often
unfair and have been in the process of limiting employers’
ability to impose non-competes on lower-level workers. Indeed, the
courts also recognize that the only legitimate basis for
non-competition obligations on the part of employees stand rooted
in trade secrets and customer relationships, not merely the desire
to lock in employees as if they were indentured servants. As a
matter of U.S. constitutional law, no legal basis exists for
indentured servitude in any form—see the Thirteenth
Amendment!

What other options exist for the put-upon employer? Recent case
law suggests one option worth avoiding involves
“no-poaching” agreements.

What constitutes a no-poaching agreement? Answer: any
agreement, written or otherwise, between competitors agreeing not
to hire each other’s employees. Recently, both the government
and the courts have made it clear that any companies vying for the
same workers—whether they be “competitors” in the
same industry, affiliated with one another, or completely
independent—will not have the legal right to enforce such
agreements, and that those agreements may even be
illegal.

Burger King Corp.’s recent loss at the Eleventh Circuit over
its no-poach agreements involving franchisees provides a road map
for how the issue may be litigated and signals such pacts
potentially run afoul of antitrust law. The U.S. Court of Appeals
for the Eleventh Circuit declined to rule on whether Burger
King’s agreements with franchisees that ban franchisees from
hiring each other’s workers is presumed to be a violation of
antitrust laws. But it remanded the former Burger King workers’
case, saying a district court judge erred in dismissing the
lawsuit.

The ruling includes ample allegations from the plaintiffs that
the agreement in question was a horizontal restraint of trade
conducted among competitors, not by a single entity. Franchisors
and other companies should also be aware that they might be opening
themselves to antitrust scrutiny if they seek to avoid certain
labor requirements by arguing they’re not direct employers of
their workers. The decision is likely to encourage plaintiffs’
attorneys to redouble their scrutiny of franchise no-poach
provisions across the country. Courts have yet to develop a
consistent test to determine under which standard the agreements
should be analyzed. The U.S. Department of Justice has reversed
course from its Trump administration stance that the agreements
should be subject to the more lenient rule of reason, now arguing
that they are per se unlawful.

The order may not have dealt with the joint employer issue
directly, but employers should be aware of the risks it implies.
Gig companies such as Uber Technologies Inc. and Lyft Inc. may well
find themselves in the cross hairs, when they argue that they work
with independent contractors rather than employees. Currently, an
antitrust case in California state court against the rideshare
behemoths is being brought under a similar theory.

In Nevada, the government appears on the verge of securing its
first successful criminal prosecution of a labor-side
antitrust violation, after a health care staffing company said it
plans to plead guilty to charges over an alleged scheme to suppress
the wages of nurses working in Las Vegas schools. VDA OC LLC
recently filed a notice in Nevada federal court saying it intends
to change its plea to guilty over claims that it violated antitrust
law through an agreement with a competitor not to raise the wages
of nurses working in the Clark County School District and not to
hire nurses from each other. The agreement was allegedly in effect
from October 2016 until July 2017, when a new owner purchased the
company.

The notice said the company did not reach a plea agreement and
will litigate any sentencing issues. The maximum corporate penalty
for criminal antitrust violations is a $100 million fine, which can
be raised to double the gain derived from the crime or double the
loss felt by the victims if either amounts to more than $100
million, according to the notice.

A guilty plea would mark the DOJ’s first successful criminal
prosecution of a labor-side antitrust violation, after having
warned since 2016 that employment-related agreements restricting
competition that are not tied to some broader collaboration can be
prosecuted criminally, just as the government handles traditional
price-fixing and other cartel conduct.

More twists and turns lie ahead, as the wheels of justice spin.
HR departments must continue to remain vigilant on all fronts.
Plainly, no-poach agreements constitute a very bad and dangerous
alternative to non-competition and non-solicitation agreements.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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