Antitrust Scrutiny of No-Poaching Agreements Continues to Pick Up Steam

24 September 2018 Labor & Employment Law Perspectives Blog
Authors: Benjamin R. Dryden Elizabeth A. N. Haas Jesse L. Beringer

To most people, “poaching” is a bad thing, connoting a mix of elephant hunting and mediocre eggs. But in labor and employment—where “poaching” means recruiting away another employer’s talent—antitrust regulators, legislators, and class action attorneys have increasingly made clear that companies should engage in poaching, or else they will face potentially serious consequences under the antitrust laws.

“No-Poach” Agreements Can Be Illegal Under the Antitrust Laws

In the simplest terms, “no-poaching” agreements are agreements between two or more companies to refrain from hiring away each other’s employees. These can include express or tacit agreements to refrain from cold-calling, targeting, or recruiting the other company’s employees. In 2016, the DOJ and FTC released guidance that no-poaching agreements that are not bundled within some other, legitimate agreement (e.g., a consulting agreement or the sale of a business) are a form of collusion that is unlawful under the antitrust laws. In fact, the guidance warns, in appropriate cases the DOJ will prosecute no-poaching cases criminally.

Since then, federal and state scrutiny of no-poaching and related agreements has skyrocketed.  In April, the DOJ sued two competing railway manufacturers that allegedly agreed not to poach one another’s employees. The companies settled with the DOJ, but within days of settling, the companies were served with class-action complaints seeking damages on behalf of employees who were allegedly affected by the agreement. The DOJ has since said that it has several additional no-poaching cases in the pipeline, including potentially, criminal cases.

Growing Scrutiny of Franchise Organizations

With this backdrop, franchisors have recently come under attack for no-poaching agreements they have with their franchisees. These agreements prevent franchisees within a given franchise organization from soliciting employees from another franchisee, and the agreements are meant to promote the strength of the organization as a whole by discouraging one franchisee from free riding off of employee training and other investments provided by other franchisees. However, government officials and private class-action attorneys are increasingly claiming that these “intra-franchise” no-poaching agreements are another form of collusion among employers that have the effects of sticking employees in low-paying jobs and forcing them to forego promotions, better benefits, or even just easier commutes.

In March, U.S. Senators (and potential 2020 presidential candidates) Elizabeth Warren and Cory Booker proposed federal legislation that would outlaw no-poaching clauses within franchise agreements. This legislation is unlikely to pass anytime soon, but both senators are increasingly using their platforms to draw attention to these issues. Meanwhile, eleven state Attorneys General have launched an investigation of national fast-food chains that use no-poaching clauses in their franchise agreements. In response, in July seven such chains—representing more than 25,000 stores nationwide—agreed to drop their no-poaching clauses altogether.

This agreement, however, has not stopped the plaintiffs’ bar. Since August, at least two national fast-food franchisors were sued in separate class-action cases involving antitrust challenges to their no-poaching clauses. Notably, both of these companies had already agreed to stop enforcing their no-poaching clauses. The plaintiffs thus are evidently seeking damages for the opportunities they may have missed to switch franchises in the past, even if those opportunities are open to them now.

Look For Further Activity and Public Attention

Between the DOJ, Senators Warren and Booker, eleven state Attorneys General, and now the class-action plaintiffs’ bar, scrutiny of no-poaching clauses has never been higher. With the DOJ promising to bring additional cases in the near future, including potential criminal cases, stay tuned for further developments in the coming months.

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