Employment Anti-Poaching Agreements: DOJ and FTC Guidelines, Antitrust Violations, Horizontal vs. Ancillary Restraints

Description

Employees are the most valuable assets of any company. They create and protect trade secrets and cultivate customer/client relationships. A no-poaching agreement is an agreement between employers and businesses not to recruit certain employees or not to compete on compensation terms.

The DOJ's Antitrust Division opened its first major no-poach case in 2010, when it filed civil complaints against several Silicon Valley companies--including Lucasfilm, Pixar, Google, Apple, Adobe, and Intel--for instructing recruiting managers to enter into "no cold-call" agreements, in which the companies agreed not to initiate contact with one another's employees and to notify each other when making an offer to one of their employees. The settlements cost the defendant companies more than $400 million. In 2016, the DOJ and the FTC issued guidance that warned that the DOJ could bring criminal charges against managers, recruiters, and C-suite employees who initiate no-poach agreements.

On July 9, 2021, President Biden issued an executive order to prevent anti-competitive conduct, calling on the FTC to engage in rulemaking to prevent the unfair use of noncompete agreements. Thereafter, the DOJ filed criminal charges for the first time against a company for using an employee no-poaching agreement. A federal grand jury returned a two-count indictment charging Surgical Care Affiliates L.L.C. (SCA) for agreeing with competitors not to solicit senior-level employees from each other. SCA owns and operates outpatient medical care centers across the country. The charges demonstrate the DOJ's commitment to criminally prosecute collusion in the U.S. labor market.

The means of restricting future employment is important. Horizontal restraints are often unreasonable per se under federal antitrust principles, meaning they are deemed illegal without any inquiry into their anti- or pro-competitive effects. If a horizontal restraint qualifies as an "ancillary" restraint, it is analyzed under the rule of reason to determine if it is legal. To qualify as an ancillary restraint, the restraint must be subordinate and collateral to a separate, legitimate transaction.

Listen as our authoritative panel discusses the limits of restrictive covenants and how the current DOJ and FTC guidance is affecting enforcement and criminal liability for violations of anti-poaching and antitrust laws.