A Look at No-Hire, No-Solicitation, and No-Poaching Agreements Between Employers

Clients are generally aware that price-fixing activity among sellers of competing products is illegal, but clients should be equally aware of potential antitrust violations in the employee services market among employers competing for a skilled workforce. In an ongoing effort to attract and retain the best of the best on the employee marketplace, it is common practice for employers to seek creative ways to retain valuable employees. Have you, as an employer, ever considered entering into an agreement with another company to not solicit, recruit, or hire each other’s employees as a matter of courtesy?  Employers might consider such no-poaching agreements to be a legitimate option where there is only an expressed intention to not solicit or hire the employees of a party to the agreement, with no exchange of confidential information taking place; but those considering such mutual no-hire, no-solicitation, or no-poaching agreements should be wary of entering into an unlawful agreement in restraint of trade and running afoul of antitrust laws.

Overview of Agreements in Restraint of Trade

A restraint of trade interferes with another person’s ability to do business or pursue a profession freely.  The federal Sherman Antitrust Act regulates both unreasonable restraints of trade and reasonable restraints of trade. A non-compete clause, for example, has largely been considered a reasonable restraint of trade if it (1) protects a legitimate interest of the employer, and (2) is sufficiently limited in time, area, and scope.  An agreement is considered an illegal restraint of trade when it colludes to unreasonably hinder someone from doing business or pursuing a trade in the way that person would normally if the restraint was not present.

Mutual No-Hire, No-Solicitation, or No-Poaching Agreements Between Employers

Can employers mutually agree not to hire, solicit, or poach each other’s employees?  The short answer in most circumstances is no.  Recent guidance issued by the United States Department of Justice Antitrust Division (DOJ) and the Federal Trade Commission (FTC) entitled Antitrust Guidance for Human Resource Professionals clarifies the federal government’s position that it is an unlawful restraint of trade for competitors to expressly or implicitly agree not to compete with one another, including in competition to hire and retain employees.  “Naked” no-poaching or wage-fixing agreements that are unrelated or unnecessary to a larger legitimate collaboration between employers may lead to criminal charges against participants and/or civil liability.  Employers should avoid entering into agreements regarding terms of employment or agreements that restrict employee solicitation among companies that compete to hire employees, whether those agreements are formal or informal, written or unwritten, spoken or unspoken.  Examples of activities that would be considered illegal restraints of trade would be (1) agreements in which two independent employers agree not to solicit or cold-call each other’s employees, (2) agreements that fix salaries or other compensation, and (3) agreements between companies to exchange compensation or other employment information.  As with most rules, there are exceptions to the blanket guidance against no-poaching and no-solicitation agreements, such as when an agreement is ancillary to a legitimate business interest and is meant to facilitate a larger legitimate collaboration, such as a merger or acquisition.

What Does This Mean for Texas Employers?

Texas employers should take steps to ensure that interactions with other employers do not result in unlawful agreements not to compete on terms of employment, including entering into no-poaching or no-hire agreements in which companies agree not to recruit, solicit, or hire each other’s employees.  Agreements that are ancillary to a legitimate business interest are still generally permissible, but should be incorporated into a broader agreement so that the business-related interest and context is clear.  Such agreements should specifically describe the legitimate, joint interest shared by the competitors that give rise to the need for the agreement and, like all non-compete agreements, lawful agreements should be narrowly tailored in terms of the employees covered, the duration, and geographic scope.  Employers wishing to enter into these agreements should ensure that the agreements are carefully scrutinized by counsel so as to not draw attention from antitrust enforcement agencies.