No-Poach Agreements Can Pose Antitrust Risks; Consider Alternatives

By Raymond (Ray) A. Jacobsen Jr., Nicole L. Castle & Joshua W. Eastby (McDermott Will & Emery)

“No-poach” agreements—whereby different employers agree not to solicit or hire each other’s employees—have been the subject of increased scrutiny in recent years by state and federal governments and private plaintiffs.

There are often legitimate reasons for no-poach agreements, but like any other agreement between independent entities, they are still susceptible to challenge as an anticompetitive agreement amongst competitors to restrain trade.

Attorneys can best serve their clients considering no-poach agreements by (1) being mindful of certain key inquiries that inform any assessment of antitrust risks they can pose; (2) ensuring that their terms conform to certain antitrust best practices; and (3) considering whether less-restrictive alternatives can accomplish the client’s goals.

This way, attorneys can help further their clients’ legitimate, pro-competitive goals while mitigating their client’s antitrust exposure for potentially unlawful restraints of trade in the market for labor.

Assessing Antitrust Risks

In assessing possible antitrust risks posed by a no-poach agreement, the most crucial inquiry is what the relationship is between the client and the putative counterparty.

The most common source of antitrust risk for no-poach agreements is Section 1 of the Sherman Act, which prohibits any “contract, combination … or conspiracy, in restraint of trade,” and, as its language implies, this requires at least two entities that are legally capable of conspiring with one another.

If a company is considering entering into a no-poach agreement with a company that it owns, that owns it, or that is also owned by its owner, Section 1 generally does not apply under the Supreme Court’s Copperweld line of cases. This isn’t to say that the antitrust laws do not apply—a “single” entity that is outside the reach of Section 1 can still constitute a monopoly in violation of Section 2. But the antitrust risks are lessened if the parties share a unity of ownership extensive enough to render them a single economic decision-maker.

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