no-poaching agreements gentlemen's agreement or criminal enterprise

No-Poaching Agreements: A Gentlemen’s Agreement or a Criminal Enterprise?

The Department of Justice has taken particular interest in examining employment agreements or practices that include no-poaching agreements – that is, agreements between companies not to recruit or hire each other’s employees. The DOJ has long taken the position that such agreements or practices violate federal antitrust laws. And at the end of the Obama Administration, the DOJ filed a series of lawsuits against several large, prominent Silicon Valley companies for allegedly entering into these illegal no-poaching agreements. The Companies settled these lawsuits for nearly $1 billion – a monumental settlement that proves the DOJ is waging an all-out war against no-poaching agreements.

While yielding its sword against these large corporations, the DOJ issued Guidance for Human Resources Professions (“HR Guidance”) to help companies that seek clarity on what restrictions on employment competition violate federal antitrust laws. The HR Guidance identifies the following two types of agreements as per se illegal:

  • “Naked wage-fixing agreements” – agreements with other companies about respective employee salary or other terms of compensation, either at a specific level or within a range; and
  • “No-poaching agreements: – agreements to refuse to solicit or hire that other company’s employees

The HR Guidance explains that these agreements could be written or unwritten, formal or informal, express or implicit, and even could be the result of a one-way communication that invited the other company to collude. And if that wasn’t enough to grab the attention of employers; the DOJ stated in its HR Guidance that it intends to pursue criminal prosecutions of future antitrust violations in addition to its historical civil enforcement.

The DOJ has stayed true to its promise to eliminate no-poaching agreements and this April reached a settlement with two of the world’s largest rail equipment suppliers after the DOJ claimed the companies had long agreed not to compete against one another for employees. The DOJ declined criminal prosecution of this “no-poach” conduct because the companies terminated these agreements before October 2016 (when the DOJ published the HR Guidance) and because the companies were forthcoming with the DOJ. The settlement imposed a number of onerous compliance provisions, including the companies’ respective appointments of an antitrust compliance officer, notification of the settlement to all employees, training on no-poaching agreements for top management, and published notice of the settlement to the rail industry.

Employers: take note of the DOJ’s aggressive enforcement of no-poaching agreements. Consider implementing portions of the DOJ’s recent settlement such as appointing an antitrust compliance officer and training top management on the illegality of formal and informal no-poaching agreements. A proactive approach to rid your company of these historical gentlemen’s agreements can prevent a federal indictment.