‘No-Poach’ Deals Are Illegal, but Sometimes HR Doesn’t Know It (1)

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By Victoria Graham

The Justice Department has said since 2016 that corporate agreements not to hire a competitor’s employees are illegal, but sometimes unlawful no-poach deals still are brokered out of ignorance, antitrust lawyers told Bloomberg Law.

The DOJ underscored its view of such agreements more than a week ago, when it announced its first no-poach settlement between rail equipment manufacturers Knorr-Bremse AG and Wabtec Corp. The agency previously cautioned that these deals will be subject to antitrust scrutiny and could be prosecuted criminally. Future settlements are in the works, DOJ officials said.

The problem could be that employers sometimes forget that no-poaching is subject to antitrust regulation, Adam Hemlock, an antitrust partner with Weil, Gotshal & Manges LLP, told Bloomberg Law. “Human resource functions are often overlooked with antitrust compliance, and in some cases, people forget or don’t appreciate that aspect of it,” he said.

DOJ Deputy Assistant Attorney General Barry Nigro echoed that sentiment April 11 at the American Bar Association’s antitrust conference in Washington. “If you have clients that haven’t focused on this, you might want to focus on it ASAP because I’ve been surprised at how many situations there are out there where these agreements exist or appear to exist,” he told a roomful of antitrust attorneys. “They’re probably more than many in this room realize.”

Criminal charges could mean jail time for offenders, said Marvin Price, acting deputy assistant attorney general in the DOJ’s antitrust division, speaking on the same ABA panel. “We view the no-poach situation to be very similar to a customer allocation agreements. Individuals are subject to both prison and fines,” he said.

No-poach agreements are subject to antitrust scrutiny because they can restrain competition among employees and deprive workers of increased wages and better employment options.

Connect the Dots

Although employers have taken note of the DOJ’s no-poach probes, they aren’t connecting the dots between these agreements and antitrust issues. “In employment, employers are the purchasers. And with antitrust, we tend to be more focused with sellers and instinctively ignore what we are buying and that is services, labor from employees,” Hemlock said.

Human-resources professionals, as the facilitators of hiring and recruiting, are often privy to no-poach agreements, but they may not realize that’s what they are or that they’re illegal, Mark Krotoski, an antitrust partner with Morgan, Lewis & Bockius LLP in Palo Alto, Calif., told Bloomberg Law. If they see such deals, they need to unwind them, he said. “It is not necessarily a duty to report but the failure to identify the conduct, access it, and take appropriate steps,” he said.

In-house counsel often are unaware of company hiring processes and therefore unable to sound alarms about suspect practices, Jeff Klein, head of Weil’s employment litigation group, told Bloomberg Law. “Use a healthy dose of common sense and understand in doing your job that it is a team sport rather than an individual sport,” he said. “Don’t treat your in-house employment lawyers as potted plants but, rather, as part of your team.”

Narrow Terms

No-poach agreements are often created for an understandable reason — to prevent employees from jumping to a competitor and sharing proprietary information, Krotoski said. But there are other legal avenues to add protections for employers without raising eyebrows in the antitrust community.

“The law does recognize some narrowly tailored exceptions, but that requires a very careful assessment to ensure that it is narrow and that it is within the scope of antitrust law that would avoid enforcement scrutiny,” he said.

Employers have the ability within joint ventures, for example, to draft narrow provisions that may include limited no-poaching or no-solicitation terms for a specific time frame, Krotoski said. Noncompete agreements also can be lawful if they’re drafted properly.

To stay within the law, agreements shouldn’t have overly broad terms and should focus on keeping a company’s proprietary information safe, Mary Strimel, a partner with McDermott, Will & Emery who specializes in antitrust investigations, told Bloomberg Law. “The key question in these types of agreements is, when is the agreement really ancillary versus when is it not really necessary,” she said.

Agreements that are too broad are likely to face an antitrust probe, but drafting these agreements to fit within the narrow legal scope is still a work in progress for many employers, she said.

No Sympathy

The DOJ said it will criminally prosecute any no-poach agreements that continued to occur or began after the department issued its 2016 guidance to HR professionals.

“DOJ is likely to continue to emphasize to the antitrust community that this is important and emphasize that they are going to enforce it criminally,” Hemlock said.

The crackdown on no-poach agreements has become an international point of discussion after Hong Kong’s Competition Commission issued no-poach guidance to HR professionals April 9, closely mirroring the DOJ’s 2016 guidance.

Educating the corporate world about the antitrust issues around no-poach agreements will take some time, Strimel said. But as the issue becomes more salient and people realize that the DOJ will have little sympathy toward the issue, more best practices on avoiding no-poach charges will materialize.

As word gets out, illegal agreements will be uncovered, Hemlock said. “As the sensitivity and knowledge spreads, that will result in more self-reporting, whistleblowers.”

To contact the reporter on this story: Victoria Graham in Washington at vgraham@bloomberglaw.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com

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