You are the CEO of Company A, a cutting-edge developer of new software. Over golf (or sushi), you agree with the CEO of equally cutting-edge Company B that each of you will not hire or try to hire away the other’s top talent.
Is anything wrong with this? Yes! The Sherman Antitrust Act prohibits contracts in restraint of trade or competition. And an agreement that has no purpose besides conspiring to limit competition for talent is a per se violation of the Sherman Act. The Sherman Act carries serious criminal and civil penalties. So the two CEOs should re-think their approach, to put it mildly.
Both CEOs have tried to enter into non-hire and anti-poaching agreements, where competing employers agree to refrain from hiring or recruiting (poaching) each other’s employees. A typical agreement prohibits cold calling and bidding wars for each other’s employees and requires notification when recruiting each other’s employees.
Non-hire and anti-poaching agreements raise several key policy and economic concerns. First, the agreements make it hard for employees to move between employers. Most employees are at-will employees who may leave one employer for another at any time, for any reason or no reason. Second, these agreements operate to suppress employee salaries; competition for talent drives salaries up, and restraints on competition have the opposite effect. Third, the agreements may not even be known to employees who try to find a new job (or to recruit from other companies), only to find they have violated a policy set by those at the top.
Non-hire or anti-poaching agreements are also unnecessary. Employers can use less harsh measures to protect against a talent drain, by using agreements that are ancillary to a business relationship and reasonable in scope. Post-employment non-competition and non-solicitation agreements may limit an employee from working for a competitor or accepting or soliciting business from customers. These agreements are enforceable if supported by consideration, where the restrictions reasonably relate to a legitimate business interest and are reasonable in time and geographic scope. Employers may also contract to restrict a departing employee from soliciting or hiring former co-workers to join a new employer during a short post-employment period. This type of anti-raiding agreement is enforceable in Pennsylvania to prevent a competitor from crippling or destroying another business, but not to prevent a competitor from hiring away talent. And courts are reluctant to find that an ex-employee has solicited anyone absent active pursuit of a former colleague: it is not solicitation to tell someone about an opportunity or a job posting. Beyond that, courts have allowed no-hire agreements in limited circumstances where one employer places a consultant or expert with another business. An employer may also require employees to repay training costs where an employee receives training and then leaves shortly afterward. Unions have the same power where a trainee takes a non-union job after training.
Like many employment law trends, scrutiny of anti-poaching agreements seems to have started in California. The courts first addressed a class action by employees in the technology industry complaining of concerted action to prevent poaching. The next major class action, settled last year, dealt with the animation industry. But non-hire agreements have also arisen in less high-flying or glamorous industries. Earlier this year, the U.S. Department of Justice negotiated an antitrust settlement that banned non-hire agreements by two major competitors in the rail equipment industry. This settlement led to a private civil antitrust class action by employees of the two competitors. And in March 2018, a Pennsylvania Superior Court panel affirmed a lower court order invalidating a no-hire agreement in the trucking industry, as contrary to public policy. The Superior Court has since granted reargument en banc and has withdrawn the panel decision. The en banc decision will tell us whether Pennsylvania will join those who have rejected no-hire agreements, like Wisconsin, or will permit suitably narrow agreement like many other states.
And finally, the fast food industry has come under fire for using no-hire agreements that prohibit employees from working at more than one chain location at the same time. Early in July, attorneys general in 11 states demanded documents from eight well-known fast food chains regarding the use of these no-poaching provisions. So non-poaching agreements are seemingly in use, and under attack, at both the high end and more basic sectors of the economy.
If you have any questions about non-hire agreements, please contact Thomas D. Rees at 610-275-0700 or firstname.lastname@example.org. Our employment law attorneys provide businesses and nonprofit organizations throughout the Pennsylvania region, including Bucks County, Montgomery County, Delaware County, Philadelphia and Chester County with sound advice and excellent representation. Our employment law attorneys deal with workplace issues in an ever-changing environment, and seek to minimize the risk of employee lawsuits for our clients.
The information above is general: we recommend that you consult an attorney regarding your specific circumstances. The content of this information is not meant to be considered as legal advice or a substitute for legal representation.