No-poach Agreements: Increasingly Risky

• Jurisdiction: United States,Federal
• Author: Written by Laura K. Kaufmann
• Publication year: 2022
• Citation: Vol. 32 No. 1

NO-POACH AGREEMENTS: INCREASINGLY RISKY

Written by Laura K. Kaufmann¹

I. INTRODUCTION

Following decades of scarce antitrust enforcement in labor markets, the Department of Justice ("DOJ") and Federal Trade Commission ("FTC") have begun to turn their attention towards so-called "no-poach" agreements: agreements between competitors to not solicit or hire one another's employees. With DOJ prosecuting its first four criminal no-poach cases against employers in 2021, and a recent federal court decision endorsing DOJ's view that some no-poach agreements can constitute per se antitrust violations, more aggressive antitrust scrutiny in this area is likely.

In light of this trend, employers must take care to ensure that their conduct, particularly communications with competitors, cannot give rise to an enforcement action. This article surveys the recent focusing of the enforcement agencies' attention on no-poach agreements and provides a set of recommendations for employers to minimize the risk that their employment practices may give rise to antitrust liability.

II. THE RISE OF LABOR ANTITRUST

Labor, just like any other product or service, is bought and sold. There is no intrinsic reason why labor, and labor markets, cannot be the subject of price-fixing or other anticompetitive conduct. Recognizing this, economists and legal practitioners in recent years have spotlighted no-poach and wage-fixing agreements as an antitrust concern. Many have come to observe that low antitrust enforcement in labor markets has exacerbated the problem of stagnating wage growth and rising wealth inequality—particularly for low-wage workers.² Labor market collusion and monopsony stand alongside several other potential culprits, including declining unionization, increasing automation, and outsourcing.

Several recent studies suggest that local labor markets tend to be highly concentrated, and that there is a correlation between high concentration and reduced wages.³ Some studies suggest that the use of no-poach agreements (particularly within franchises), wage-fixing agreements, and non-compete clauses in employment contracts for low-wage workers are the most visible manifestations of concentrated labor market power.⁴ This has led a growing chorus of economists, academics, and practitioners to criticize what they perceive as lackluster antitrust enforcement in labor markets, and to advocate for a more robust enforcement and regulatory regime.⁵

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III. DOJ AND FTC LABOR ANTITRUST ENFORCEMENT

In the past decade, DOJ and FTC have turned their attention to market power and collusion in labor markets as an antitrust problem. Antitrust enforcement in this area has historically been limited, as the agencies have tended to focus on product markets and have been reticent to tailor their approach to challenging market power and anticompetitive conduct in labor markets.⁶ Further, no-poach agreements have not commonly been recognized as one of the three types of anticompetitive conduct traditionally considered per se illegal—price-fixing, bid rigging, and market allocation—despite the fact that they essentially amount to buy-side market allocation.

Reflecting a newfound concern for anticompetitive conduct in labor markets, the agencies in the past few years have brought several civil actions against companies for their alleged use of no-poach agreements. In 2010, for instance, DOJ brought a series of cases against tech companies—Adobe, Apple, Google, Intel, Intuit, Pixar, and Lucasfilm—alleging no-poach agreements with respect to highly skilled employees.⁷ According to DOJ, alleged agreements between Apple and Google, Apple and Adobe, Apple and Pixar, and Google and Intel prevented the companies from directly soliciting each other's employees, and an alleged agreement between Google and Intuit prevented Google from directly soliciting Intuit employees.⁸ Similarly, DOJ claimed that "Lucasfilm and Pixar agreed not to cold call each other's employees; agreed to notify each other when making an offer to an employee of the other company; and agreed, when offering a position to the other company's employee, not to counteroffer with compensation above the initial offer."⁹

DOJ reached settlements with each of these companies, under which the defendants agreed to refrain "from entering, maintaining, or enforcing any agreement that in any way prevents any person from soliciting, cold calling, recruiting, or otherwise competing for employees," and to implement compliance measures. DOJ's complaints were followed by private class actions (and hefty settlements) for the same alleged conduct, underscoring that attracting the attention of government enforcers can also result in costly follow-on suits.¹⁰

Then in 2012, DOJ filed a civil antitrust lawsuit against eBay, alleging that the company had agreed with Intuit to not recruit or hire Intuit's employees.¹¹ DOJ alleged that Meg Whitman (then-CEO of eBay) and Scott Cook (Inuit's founder and executive committee chair) were closely involved in forming, monitoring, and enforcing this no-poach agreement, and argued that the agreement eroded competition to the detriment of employees who likely were denied access to greater job opportunities and salaries.¹² As part of a settlement agreement with DOJ, eBay agreed to pay $3.75 million in compensation to affected workers and to end its use of no-poach agreements.¹³

DOJ's enforcement efforts in labor markets have not solely targeted employer collusion. In late 2021, DOJ challenged a proposed merger between the publishing companies Penguin and Simon & Schuster under Section 7 of the Clayton Act.¹⁴ In a press release, Attorney General Merrick Garland stated that "American authors and consumers will pay the price of this anticompetitive merger—lower advances for authors and ultimately fewer books and less variety for consumers."¹⁵ The agency's complaint alleges that the merger "would likely result in substantial harm to authors of anticipated top-selling books"—essentially, workers—because the merged entity "would control close to half of the market for the acquisition of publishing rights to anticipated top-selling books," and the two largest publishers post-merger "would collectively control more than two-thirds of this market, leaving hundreds of authors with fewer alternatives and less leverage."¹⁶ DOJ further asserted that the merger would "reduc[e] author pay" and "make it harder for authors to earn a living by writing books."¹⁷

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State attorneys general are also active in this space. The Washington State Attorney General, for example, has made it a priority to end the use of no-poach agreements, particularly in the franchise context. Over the past few years, Washington's Attorney General has signed hundreds of agreements with corporate chains to eliminate no-poach agreements from all of their franchise agreements.¹⁸ The Washington Attorney General's Office is even more aggressive than DOJ when it comes to no-poach agreements, as the Office views no-poach agreements in the franchise context as per se illegal.¹⁹

In addition, DOJ has filed Statements of Interest in a number of civil cases to emphasize that DOJ views no-poach agreements as a form of illegal market allocation subject to per se treatment. In one of these Statements, DOJ wrote that "no-poach agreements among competing employers have almost identical anticompetitive effects to wage-fixing agreements: they enable the employers to avoid competing over wages and other terms of employment offered to the affected employees."²⁰ DOJ further argued that no-poach agreements should be subject to the per se rule unless the ancillary restraints doctrine²¹ or core venture doctrine²² applies, meaning that, in most cases, these agreements are so clearly anticompetitive that the court does not need to ask whether any procompetitive benefits might outweigh the anticompetitive effects.²³ DOJ has collected these and other recent Statements of Interest in no-poach cases on a webpage called the "No-Poach Approach," signaling that it intends to put employers on notice of heightened scrutiny in this area.²⁴

Courts have found DOJ's Statements of Interest persuasive. In In re Railway Industry Employee No-Poach Antitrust Litigation, for instance, the district court referenced DOJ's Statement of Interest directly, writing that it supported the court's refusal to dismiss the plaintiffs' complaint because it "explained that the federal agencies charged with enforcing the antitrust laws consider naked no-poach agreements per se violations of the Sherman Act and DOJ will proceed criminally against those who enter into those kinds of agreements."²⁵

IV. DOJ'S SHIFT TO CRIMINAL ANTITRUST ENFORCEMENT AGAINST NO-POACH AGREEMENTS

Over the past few years, DOJ has shifted its focus from civil enforcement to criminal enforcement. Beginning in 2016, DOJ repeatedly avowed that it would crack down on no-poach agreements, including specifically through criminal prosecution. In October 2016, DOJ and FTC published Antitrust Guidance for Human Resources Personnel, ...