A senior sales executive for your biggest competitor is looking to jump ship, and wants to join your company. Your management is thrilled. Not only will your company gain a talented salesperson with industry knowledge and contacts, but you will also be hurting your competitor at the same time. What a coup!
However, the question crosses your mind, are there any antitrust issues involved in hiring away a competitor’s employees? The answer is: there can be. And a little bit of forethought now can save your company a great deal of risk and expense down the line.
“Predatory Hiring” And Monopolization
A firm that has monopoly power (or a “dangerous probability” of attaining monopoly power) can violate the Sherman Act’s prohibition against “monopolization” (or attempted monopolization) by engaging in “predatory” conduct. (For a more in-depth explanation of the antitrust laws generally, see here.) Predatory conduct generally means conduct meant to harm or disadvantage competitors “on some basis other than efficiency.” “Monopoly power” (or a dangerous probability thereof) can be inferred from having a market share as low as 30 percent in some markets.
From time to time, antitrust cases come up where a large competitor hires away a key employee, or a group of key employees, from a smaller competitor. The theory of these cases is that by hiring away a competitor’s employees, a large firm can achieve or maintain a monopoly over the relevant industry. These cases are known as “predatory hiring” claims.
Courts tend to approach predatory hiring claims with a healthy dose of skepticism. As one court has explained, “there is a high social and personal interest in maintaining a freely functioning market for talent.” Put differently, companies ought to be competing for talent, and it would turn the antitrust laws on their head to discourage firms from competing with one another for labor. As the Department of Justice and the Federal Trade Commission have put it, “competition among employers helps actual and potential employees through higher wages, better benefits, or other terms of employment.” Therefore, at least one court has stated that “the mere hiring away of employees from a rival is per se legal under the antitrust laws.”
However, under specific factual circumstances, courts occasionally do entertain claims for predatory hiring. A leading case on this issue explains that “when talent is acquired not for purposes of using that talent but for purposes of denying it to a competitor,” then the line is crossed between lawful and “predatory” hiring. For example, predatory hiring might be found where “a dominant computer software firm . . . hires away all of its rivals’ best programmers and, because it has enough of its own programmers, employs them as custodians paid the salaries of computer programmers rather than custodians.” Therefore, as another court explained, predatory hiring exists where the employee either is unused or there is a proven intent that the hiring was for the purpose of denying the employee to the competitor.
Based on this standard, courts have rejected predatory hiring claims brought against a test-preparation company that recruited a competitor’s star faculty member away to use for its own classes, or against a radio station that poached a team of its competitor’s on-air talent to use for its own programming. However, a predatory hiring claim was allowed to survive past a motion to dismiss where a plaintiff alleged that a hospital system had “raided” a rival by luring away the rival’s key physicians with above-market salaries, even though the hospital system was unable to keep the physicians busy and eventually had to let them go.
Practical Tips For Lessening Exposure to Predatory Hiring Claims
Given the risks of a predatory hiring claim, it is worth pausing before hiring away a competitor’s key employee (or a group of employees). There are seven things to keep particularly in mind.
Additional Issues in Employees Working for Two Competitors At the Same Time
This article has focused on situations where one company hires an employee away from a competitor. There is a whole other body of law around situations where one employee works for two different competing companies at the same time. Those situations can raise issues of improper coordination under Section 1 of the Sherman Act and, when they involve officers or directors, issues of “interlocking” under Section 8 of the Clayton Act. These issues are more fully explored here, but they are serious considerations that should be raised with antitrust counsel before any decision is made to hire an employee who will simultaneously be working for a competitor.
The antitrust laws exist to promote competition, and these laws should not deter companies from vigorously competing with one another for valuable talent. However, the law recognizes that bona fide competition has its limits. Companies with monopoly power (or a dangerous probability of attaining monopoly power) can run into monopolization issues by poaching away talent for the sole purpose of harming their competitors. Therefore, before hiring away a competitor’s employees, take a moment to develop a plan for using the employees in a meaningful capacity commensurate with their salaries, and then put that plan into writing in case it is ever needed to defend against an antitrust case.