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THE LATEST: DOJ Distinguishes ‘No-Poach’ Agreements

  • The Department of Justice filed a Statement of Interest in three related cases in the Eastern District of Washington yesterday dealing with alleged “no-poach” (or non-solicitation) agreements between franchisors like Carl’s Jr, Auntie Anne’s and Arby’s and their franchisees.
  • In the statement, the DOJ distinguished between “naked” no-poach agreements between competitors and the kinds of no-poach agreements in the franchise context that are typically vertical restraints between the parent company and the individual franchisee.
  • According to the DOJ, naked no-poach agreements should be analyzed as per se, or presumptively anticompetitive and illegal under Section 1 of the Sherman Act, while most vertical restraints should be analyzed under the rule of reason which requires some balancing of potential harms and benefits.
  • The statement did, however, distinguish two scenarios where franchise agreements could still merit per se
  • In a situation where the “franchisees operating under the same brand name agreed amongst themselves (and wholly independent from the franchisor), for example, not to hire any person ever previously employed by another franchisee that is a party to the agreement.” Stigar v. Dough Dough, Inc. et al., No. 2:18-cv-00244-SAB, Statement of Interest of the United States of America at 11 (Mar. 7, 2019).
  • In an agreement between a franchisor and franchisee relating to competition in a market where they actually compete. “If operating in the same geographic market, they both could look to the same labor pool to hire, for example, janitorial workers, accountants or human resource professionals. In such circumstances, the franchisor is competing with its franchisee.” If such agreement is not ancillary to any legitimate and procompetitive joint venture, it would warrant per se Id. at 13.
  • For many franchises, the DOJ’s distinction between “naked” and vertical no-poach agreements will represent welcome respite from the onslaught of class actions that have been filed recently.
  • Franchisors and franchisees, however, will still need to demonstrate any past or future no poach agreements are not (1) between franchisees and independent of the franchisor, or (2) operating in the same geographic market where both entities actually compete.
  • It also remains to be seen whether the court will adopt the DOJ’s view on the topic, and how State Attorneys General will react.

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Aerospace & Defense Series: Antitrust Risks for Aerospace and Defense Contractors in Employment Practices

As highlighted in a recent lawsuit, aerospace and defense contractors can face various antitrust risks when using certain tactics to prevent other companies from hiring their employees. See Hunter v. Booz Allen Hamilton Holding Corp., No. 2:19-CV-411 (S.D. Ohio). The plaintiff, a former intelligence professional who worked at the US government’s Joint Intelligence Operations Center Europe Analytic Center in Molesworth, England (JAC Molesworth), filed an antitrust suit on behalf of herself and a class of JAC Molesworth employees. She alleges that three military intelligence contractors—Booz Allen, CACI and Mission Essential—entered into illegal agreements not to hire one another’s employees. The complaint alleges that the three contractors each had Indefinite Delivery / Indefinite Quantity (IDIQ) contracts and, prior to the alleged “no-poach” agreement, competed aggressively to hire employees with experience at JAC Molesworth to provide services under contract task orders. According to the complaint, these alleged no-poach agreements had the effect of suppressing the wages and benefits for skilled workers at JAC Molesworth because they stopped a bidding war for talent.


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How to (Legally) Keep Competitors from Poaching Your Key Employees: Antitrust Law and Non-Poaching/Non-Solicitation Agreements

by Nick Grimmer

How can a company legally protect its valuable interests in key employees, when a competitor can just swoop in with a more attractive employment offer?  A non-poaching agreement or clause (also called a no- or non-poach, -hire, -interference, -switching or -solicitation agreement or clause, depending on the circumstances) can offer protection.  In these agreements, competitors or potential competitors for skilled labor might agree not to cold call, solicit, recruit or even hire each other’s employees.  The agreements usually cover specified employees or categories of employees (e.g., by title, skill area or salary level) and usually last for a set period of time. 

The ancillary restraints doctrine generally governs non-poaching agreements.  Under that doctrine, a restraint of trade (here, the non-poaching agreement) is permissible if it is one in which there is also a legitimate/procompetitive main agreement, and the covenant in restraint of trade is necessary and merely ancillary (i.e., collateral or subordinate) to that agreement.  If it is not, then it is a “naked restraint of trade” and will be per se illegal under federal antitrust law (and the plaintiff—typically, the affected employee(s)­—will need only to prove the existence of the restraint, as opposed to having to show its anticompetitive effects, which are presumed).  Conversely, if a non-poaching agreement is ancillary to a legitimate/procompetitive agreement, it is judged under the rule of reason, which involves a balancing of procompetitive benefits and anticompetitive effects. 

Agreements that keep employees out of competitors’ camps come in several flavors.  The basic types—and their general antitrust treatment—include:

“Naked” agreements between competitors:  Like an (illegal) agreement among competitors to divide sales territories, a naked agreement among competitors for labor simply to not hire each other’s employees is likely per se illegal (in essence, they both entail “you keep what’s yours, I keep what’s mine”).  To avoid per se illegality, keep these points in mind:

  • The purpose of the main agreement must be legitimate; a non-poaching agreement aimed only at “protecting” employees from poaching or improving relations with a competitor for labor is a non-starter.  We address examples of legitimate purposes below.
  • The more related and tailored the non-poaching agreement is to a legitimate purpose, the more likely it is necessary and ancillary to a legitimate main agreement (such that the rule of reason will apply); conversely, a broad, vague or general non-poaching agreement might be subject to per se treatment.  So, a non-poaching agreement should:
    • be in writing
    • set a specific end point with a clear relationship to the main agreement (e.g., a reasonable period following a sale); and
    • specifically define the scope of covered employees (by class, position, section of the company, geography or even name) in a manner clearly related to the main agreement; it should cover only the employees that are or might be directly involved or at issue in the main agreement.  So, for example, if two companies enter a joint venture that relates to only one of their numerous product lines, the joint venture agreement’s [...]

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