No-Poach Approach

Antitrust Division Spring Update 2019

As part of its enforcement and competition advocacy mission, the Antitrust Division has for years educated companies and individuals about how the antitrust laws apply to hiring and compensation decisions. In particular, the Division protects labor markets and employees by actively investigating and challenging unlawful no-poach and wage-fixing agreements between employers. When companies agree not to hire or recruit one another’s employees, they are agreeing not to compete for those employees’ labor. Robbing employees of labor market competition deprives them of job opportunities, information, and the ability to use competing offers to negotiate better terms of employment. Under the antitrust laws, the same rules apply when employers compete for talent in labor markets as when they compete to sell goods and services.

In addition to issuing the DOJ and FTC Antitrust Guidance for Human Resource Professionals, the Division has filed statements of interest in private antitrust cases pending in the several federal district courts. As part of the Division’s expanded amicus program, the United States filed the statements of interest in order to provide a more fulsome exposition of how Section 1 of the Sherman Act applies to agreements between employers not to compete for employees.

Rail Industry Employees

On April 3, 2018, the Antitrust Division filed a civil antitrust lawsuit against Knorr-Bremse AG and Westinghouse Air Brake Technologies Corporation (“Wabtec”), and with it simultaneously filed a civil settlement. The complaint alleges that these companies and a third company, Faiveley, reached naked no-poach agreements beginning as early as 2009 and continuing until at least 2015, in violation of Section 1 of the Sherman Act.

After the settlement, more than 15 private lawsuits were filed by current or former employees of the companies. Those cases were consolidated in the Western District of Pennsylvania. The defendants moved to dismiss the complaint. As part of their motion briefing, defendants argued that all no-poach agreements should be assessed under the rule of reason.

The United States filed a statement of interest to express its view about the law applicable to naked no-poach agreements, like the ones alleged in the complaint. See Statement of Interest of the United States, In re: Railway Industry Employee No-Poach Antitrust Litig., 2:18-mc-00798 (W.D. Pa. Feb. 8, 2019). In particular, the United States argued in its brief and at a hearing held on February 25, 2019, that a naked no-poach agreement is a type of horizontal market allocation that should be assessed under the per se rule.

Medical School Faculty Members

Subsequently, the Division filed a statement of interest in a private no-poach case alleging that Duke University and the University of North Carolina entered into an agreement not to poach each other’s medical school faculty. Statement of Interest of the United States, Seaman, et al. v. Duke University, et al., 15-cv-00462 (M.D.N.C. March 7, 2019).

The United States urged the Court to apply the per se rule if it finds that Duke and UNC entered into a naked no-poach agreement. It also argued that, based on the allegations in the operative complaint, the Court should not find that defendant Duke University has derivative immunity from antitrust liability if the Court finds that it entered into an unlawful agreement in violation of Section 1 of the Sherman Act.

Fast Food Franchise Employees

Most recently, the United States filed Statements of Interest in three private no-poach cases filed by former employees against Auntie Anne’s, Arby’s, and Carl’s Jr., respectively. Corrected Statement of Interest of the United States, Harris v. CJ Star, LLC, 2:18-cv-00247 (E.D. Wash. Mar. 8, 2019); Corrected Statement of Interest of the United States, Richmond v. Bergey Pullman Inc., 2:18-cv-00246 (E.D. Wash. Mar. 8, 2019); Corrected Statement of Interest of the United States, Stigar v. Dough Dough, Inc., 2:18-cv-00244 (E.D. Wash. Mar. 8, 2019).

The plaintiffs in each case alleged similar facts: that the franchisor and franchisees entered into agreements that prohibited the franchisees from soliciting or hiring the employees of other franchisees or the franchisor. Defendants filed motions to dismiss, and the litigants expressed diverging views on whether a franchisor and franchisee can conspire with each other within the meaning of Section 1 of the Sherman Act and which rule of analysis should govern whether no-poach agreements among franchisors and their franchisees violation Section 1.

In its statement of interest, the Division argued that a franchisor and franchisee are not automatically deemed to be a single entity and can be separate entities capable of conspiring within the meaning of Section 1. The United States also argued that naked, horizontal no-poach agreements between rival employers within a franchise system are subject to the per se rule. A restriction in a franchise agreement that forbids franchisees from poaching each other’s employees, however, is subject to the rule of reason in the absence of agreement among the franchisees because it is a vertical restraint. If there is alleged agreement among the franchisees, the restraint is subject to the rule of reason so long as it is ancillary; that is, separate from, and reasonably necessary to, the legitimate franchise collaboration. Moreover, the Division argued that the “quick-look” form of rule of reason analysis is inapplicable because the court should weigh the anticompetitive effects against the procompetitive benefits of franchise no-poach agreements that qualify as either vertical or ancillary restraints.

While none of the courts in these matters have issued decisions on the respective defendants’ motions to dismiss, the Division filed its statements of interest in order to provide its views and analytical clarity about the application of Section 1 in various hiring and recruiting circumstances.

The Division will continue to vigorously enforce the antitrust laws in labor markets and will continue to educate lawyers, businesses, and individuals about how the antitrust laws apply to hiring and compensation decisions.

Job search form on laptop screen

Photo credit: fizkes/iStock/Getty Images Plus

 

Updated March 26, 2019

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