Are No-poach Agreements Legal?
May 31, 2023
By: Colin A. Walker
A no-poach agreement is an agreement between employers not to hire each other’s employees. Such agreements have an obvious negative impact on competition for labor and employees’ ability to find work, usually unlawful under antitrust laws. However, under some circumstances, they can be permissible.
Some employers have argued that no-poach agreements have legitimate business purposes which are not anti-competitive. For example, when one business acquires a division of another business, the acquiring business might legitimately ask the other to agree not to solicit its employees to protect the assets it just purchased.
The U.S. Department of Justice and Federal Trade Commission have taken the position that no-poach agreements are illegal. See Antitrust Guidance for Human Resource Professionals, (“Guidance”). The Guidance explains that no-poach agreements are anti-competitive and violate civil and criminal provisions of the antitrust laws. The Guidance cites a number of civil cases resulting in consent judgments and vows “Going forward, DOJ intends to proceed criminally against naked wage fixing or no-poaching agreements.”
The Department of Justice has filed both civil and criminal actions based on no-poach agreements, with mixed results. Just this year, a federal court in Connecticut dismissed criminal charges against six HR executives based on no-poach agreements. The court held that the agreements were permissible under the “rule of reason,” finding that there were numerous exceptions which permitted hiring, sometimes on a large scale, such that the no-poach agreements did not have a significant effect on competition. A criminal case in Colorado resulted in an acquittal. In another case, however, the Department was able to obtain a conviction by a plea agreement. A number of civil actions have resulted in consent judgments requiring employers to discontinue no-poach agreements.
Employers should tread carefully. Even if criminal convictions are unsuccessful, few things in life are more stressful, expensive and unpleasant that defending one’s self from criminal charges, and civil litigation is little better. Executives considering no-poach agreements should carefully analyze the applicable laws and consult with competent legal counsel.