April 4, 2018

DOJ Challenges Employer No-Poaching Agreements as Per Se Antitrust Violation

Holland & Knight Antitrust and Competition Blog
David C. Kully

The DOJ's Antitrust Division sent a powerful message to the business community yesterday when it sued railroad equipment suppliers Knorr-Bremse AG and Westinghouse Air Brake Technologies Corporation (Wabtec) for entering into agreements "not to solicit, recruit or hire without prior approval, or otherwise compete for employees." The DOJ alleged that these so-called "naked no-poaching agreements" "denied American rail industry workers access to better job opportunities, restricted their mobility and deprived them of competitively significant information they could have used to negotiate for better terms of employment." As is often the case with civil antitrust investigations, the DOJ had negotiated a settlement with the two companies before going public and filed that settlement as a consent decree simultaneously with filing its complaint in court.

DOJ had given the business community plenty of warning that it would target these kinds of practices. In October 2016, at the tail end of the Obama Administration, the DOJ's Antitrust Division and the Federal Trade Commission issued joint "Antitrust Guidance for Human Resource Professionals," in which the antitrust agencies confirmed the seriousness with which they viewed unjustified agreements between competitors not to hire away each other's employees. The DOJ had previously pursued a number of enforcement actions in the tech industry challenging "naked" agreements not to "poach" employees from other companies. In those cases, the DOJ distinguished "naked" no-poaching or no-hiring agreements from non-solicitation agreements "reasonably necessary to a larger legitimate collaboration between the employers." In the October 2016 guidance, the DOJ reaffirmed this distinction and announced that, with respect to naked employment-related agreements, it intended to take things a step further and to consider criminal prosecutions of companies and executives responsible for those unjustified agreements.

Earlier this year, Makan Delrahim, current head of the DOJ's Antitrust Division, revealed in a speech that the DOJ had not abandoned the prior administration's guidance, that the DOJ had several no-poaching agreements under investigation and that the DOJ would soon be making "some announcements" relating to these efforts.

As it had in past cases, the DOJ alleged that the Knorr/Wabtec agreements were per se illegal, civil antitrust violations. The DOJ explained that, in "an exercise of prosecutorial discretion," it would not pursue criminal prosecutions to punish conduct "entered into and terminated before" the DOJ and FTC released its guidance in October 2016. The DOJ had discovered the Knorr/Wabtec agreements before that date and the parties at that time terminated the agreements.

However, the DOJ signaled in today's action that criminal prosecutions might still be forthcoming. In the consent decree settling yesterday's lawsuit, Knorr and Wabtec agreed to cooperate with the DOJ in "any investigation or litigation examining whether or alleging that" either party entered into further no-poaching agreements with other parties.

Importantly, DOJ went out of its way to confirm that routine non-solicitation provisions that companies frequently establish in connection with a legitimate collaboration with another company are unlikely to be met with significant hostility by the antitrust authorities. Although the DOJ's consent decree with Knorr and Wabtec prohibits them from entering into agreements that restrain "any person from cold calling, soliciting, recruiting, hiring, or otherwise competing for" employees, the consent decree also expressly permits the parties to establish reasonable agreements "not to solicit recruit, or hire employees" if such an agreement is "ancillary to a legitimate business collaboration."

Non-solicitation provisions that help further the purposes of legitimate interactions between companies – such as a joint venture or discussions concerning the potential sale of a company – are unlikely to violate the antitrust laws (and are even less likely to present any potential criminal antitrust concerns) if reasonable in duration and scope.

Formal transactions between companies that compete for employees are typically reviewed by corporate counsel and should present very low risk. The greater risk for the in-house counsel is that line managers who come into contact with their counterparts at competing companies may make informal private agreements not to solicit or hire each other's employees. Based on the DOJ's latest action, every corporate counsel and compliance officer should make sure that the company's antitrust compliance training includes a discussion of the risks of employment-related agreements.

Related Insights