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Enforcement Against "No-Poach" Agreements on the Rise

July 23, 2018

Enforcement Against "No-Poach" Agreements on the Rise

July 23, 2018

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Since the release of the joint DOJ/FTC guidance, antitrust enforcement activity in labor markets has dramatically increased.

Federal and state antitrust officials have recently stepped up enforcement against agreements between competitors not to solicit each other’s employees. On July 12, 2018, Washington state Attorney General Bob Ferguson announced that seven fast-food chains—Carl’s Jr., Buffalo Wild Wings, McDonald’s, Jimmy John’s, Cinnabon, Auntie Anne’s and Arby’s—had agreed to end so-called “no-poach” clauses in franchise agreements that prevented their employees from moving among franchise locations. The deal will have a nationwide effect, impacting tens of thousands of employees who work at more than 25,000 of the chains’ locations. Several days before that announcement, 10 other state attorneys general publicly released a letter they jointly sent to eight large fast-food chains seeking documents and information about no-poach provisions in their franchise agreements.

The increased focus on no-poach agreements began at the end of the Obama Administration. In October 2016, the Justice Department’s Antitrust Division and the Federal Trade Commission jointly issued a policy statement entitled “Antitrust Guidance for Human Resource Professionals.” The purpose of the guidance was to alert HR professionals to potential violations of the antitrust laws in hiring and compensation decisions. The most significant aspect of the guidance was the announcement that “[g]oing forward, the DOJ intends to proceed criminally against naked wage fixing or no poaching agreements.” 

Before the guidance, such agreements were typically investigated as civil violations of the antitrust laws. For example, in 2010, the DOJ settled a civil no-poach case against major tech companies. Treating such agreements as criminal violations significantly increases the risk for companies engaged in such behavior. The policy change reflected the DOJ’s view that such agreements are like price-fixing or market allocation agreements, which are per se illegal under the antitrust laws, i.e., there can be no legal justification for such agreements. In the DOJ’s view, so-called "naked" agreements among firms not to hire each other’s employees prevent firms from freely competing in the labor market, which can result in lower wages. A naked agreement is one that is not ancillary to a broader, legitimate collaboration between the firms. 

Since the release of the joint DOJ/FTC guidance, antitrust enforcement activity in labor markets has dramatically increased. In January, Assistant Attorney General for Antitrust Makan Delrahim said that the Antitrust Division had several criminal no-poach investigations underway, that he has been “shocked” by how many such agreements are out there, and that announcements would be made in the coming months. (It is worth noting that only conduct after the October 2016 announcement of the policy will be subject to criminal prosecution.) 

While no criminal charges have yet been announced, the DOJ reached a major civil settlement in April with two of the world’s largest rail equipment suppliers which, in 2009, agreed not to solicit each other’s employees. Class action lawsuits by employees of the companies have been filed throughout the country. 

Companies should be aware that no-poach agreements could lead to criminal antitrust prosecutions against both the company and individuals within the company. Violations are punishable by up to $100 million in fines (for companies) and $1 million in fines (for individuals), or twice the gross gain or loss from the offense, whichever is greater. Individuals can be sentenced to up to 10 years of imprisonment. In addition, private lawsuits—which inevitably follow such prosecutions—could lead to companies paying significant damages. In antitrust cases, plaintiffs are entitled to three times the amount the plaintiffs actually suffered, plus attorney fees.

For Further Information

If you have any questions about this Alert, please contact Christopher H. Casey, one of the attorneys in our Antitrust and Competition Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.