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No Poach Agreements Continue to Cause Ire

As many employers know, there is no federal law that prohibits a company from entering into a contract with one of its employees to prevent that employee from quitting, going to a new employer and bring co-workers with him/her.  In legal terms, this is usually referred to as a “no-solicitation” provision.  State laws dictate the enforceability of these types of provisions generally.  A similar type of provision is a “no poach” provision – but this one is between companies and it prohibits them from stealing each other’s employees.  These are not so easy to enforce and might actually land a company in some very hot water.

The Sherman Act is a federal antitrust statute that prohibits monopolies or unreasonable combinations of companies to restrict or in any way control interstate commerce.  In 2016, the Department of Justice and Federal Trade Commission released Antitrust Guidance for Human Resource Professionals alerting companies that “naked” no poach agreements constitute per se antitrust violations and would likely be prosecuted criminally.  A “naked” no poach agreement is one that is not part of a broader, legitimate business collaboration, i.e., the only purpose of the agreement is to address poaching.   In January 2018, the DOJ announced it would continue to follow the 2016 Antitrust Guidance. 

Since the guidance was published, employees across the country have filed civil class actions against companies asserting anti-trust violations.  Recently, a former Papa John’s worker filed an antitrust suit in New York federal court alleging the company had its franchisees sign a “no hire” agreement blocking them from employing any person employed by the Corporation, its affiliates, or other franchisees.  In the lawsuit, the Papa John’s worker alleges the agreement actually required the franchisees not to hire the Papa John’s workers if they applied, rather than just preventing a franchisee from soliciting workers from a location down the street. 

The DOJ has also announced its intentions to criminally prosecute companies and individuals who continue to utilize these naked no poach agreements following the release of the 2016 guidance.  The stakes in these cases are high since in a criminal case a company can face up to $100 million in fines while individual HR professionals and executives can face fines up to $1 million and up to 10 years’ imprisonment. 

Brody and Associates regularly provides counsel on employment agreements, covenants not to compete, and employment litigation in general.  If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560.