In a Tight Labor Market, a Reminder: Most No-Poaching Agreements are Illegal, Some Could Land You in Jail

In recent months, the U.S. unemployment rate has dropped to levels not seen since the late 1960s. This news—great for American workers—has left many employers scrambling to identify, hire, and retain qualified talent and to shore up efforts to assess and manage the business risks posed by an increasingly peripatetic workforce. As employers evaluate and implement tools to recruit workers (e.g., signing bonuses) and to protect business goodwill and competitive market position (e.g., confidentiality and non-compete agreements), a word of caution is in order: No-poaching agreements are, in most cases, illegal, and entering such agreements could lead to jail time.

What is a no-poaching agreement?

A no-poaching agreement is an agreement between employers to refrain from soliciting or hiring each other’s employees. It is distinct from a non-compete or non-solicit agreement between an employer and its employee because it is an agreement between competitors to limit competition; it is, as a result, a matter of antitrust law.

In late 2016, the Obama Department of Justice and Federal Trade Commission took aim at no-poaching agreements. In coauthored guidance, the agencies announced increased scrutiny of these agreements and warned that “[a]n individual likely is breaking the antitrust laws if he or she agrees with individual(s) at another company to refuse to solicit or hire that other company’s employees ….”

Here’s an illustration included in the guidance:

Question: I work as an HR professional in an industry where we spend a lot of money to recruit and train new employees. At a trade show, I mentioned how frustrated I get when a recent hire jumps ship to work at a competitor. A colleague at a competing firm suggested that we deal with this problem by agreeing not to recruit or hire each other’s employees. She mentioned that her company had entered into these kinds of agreements in the past, and they seemed to work. What should I do?

Answer: What the colleague is suggesting in a no-poaching agreement. That suggestion amounts to a solicitation to engage in serious criminal conduct. You should refuse her suggestion and consider contacting the Antitrust Division’s Citizen Complaint Center or the Federal Trade Commission’s Bureau of Competition to report the behavior of your colleague’s company. If you agree not to recruit or hire each other’s employees, you would likely be exposing yourself and your employer to substantial criminal and civil liability.

The guidance was issued in the wake of high-profile agency enforcement actions against eBay, Pixar, and Google involving those companies’ alleged agreements with competitors not to “cold call” each other’s employees about job opportunities. In a related case, Disney agreed to pay $100 million to settle claims alleging it maintained a “gentleman’s agreement” with competing animation studios under which the studios would not recruit or hire each other’s workers.

Recent agency statements make clear that no-poaching agreements remain an enforcement priority.

After President Trump was inaugurated in 2017, speculation swirled as to whether the new administration would dump Obama-era guidance on no-poaching pacts. But any doubt was laid to rest when a high-ranking member of the DOJ’s Antitrust Division gave remarks in late 2017 reminding outside employment counsel that their clients should be “on notice” that no-poaching agreements may lead to criminal prosecutions. More recently, this year, another top Antitrust Division official made more pointed threats of criminal sanctions, stating that employers failing to heed the DOJ and FTC warning about no-poaching agreements do so at their own peril and commenting that he had “been shocked about how many of these [agreements] there are, but they’re real.”

Are no-poaching agreements ever legal?

The 2016 DOJ and FTC guidance provides that “if the agreement is separate from or not reasonably necessary to a larger legitimate collaboration between the employers, the agreement is deemed illegal without any inquiry into its competitive effects.” Beyond this, the guidance contains no explanation of what a “larger legitimate collaboration” is or how to determine whether a no-poaching agreement is “reasonably necessary” to such collaboration. While there are court decisions fleshing out limited circumstances under which such agreements are legal (e.g., necessary as part of a merger or acquisition, necessary for the settlement of a legal dispute), employers should proceed with caution. It is fair to read the 2016 guidance as stating that DOJ will treat most no-poaching agreements as illegal, at least until proven otherwise.

The bottom line for employers

An agreement among competitors that limits competition for employees is subject to attack as per se illegal. And per se illegality comes with stiff penalties, including the possibility of criminal sanctions. As the 2016 guidance explains:

“The DOJ will criminally investigate allegations that employers have agreed among themselves on employee compensation or not to solicit or hire each other’s employees. And if that investigation uncovers a naked wage-fixing or no-poaching agreement, the DOJ may, in the exercise of prosecutorial discretion, bring criminal, felony charges against the culpable participants in the agreement, including both individuals and companies.”

Because the stakes are so high, employers must make certain that HR employees, as well as all others involved in recruiting and hiring, are trained to identify and avoid illegal no-poaching agreements. As the 2016 guidance explains, these agreements are not always apparent on their face: They may be informal or formal, written or unwritten, spoken or unspoken, and direct evidence of an agreement is not needed for a violation to be found—an agreement can be inferred from evidence of discussions and parallel behavior. As a result, prudent employers should consider extending or expanding antitrust training to HR personnel.