Beware of ‘no-poach’ agreements

Since October 2016, the Justice Department’s Antitrust Division has warned on numerous occasions that it will consider companies that enter into “no-poach” agreements as violating antitrust law, and they will face felony criminal charges. In an exercise of prosecutorial discretion, the agency said it will pursue as civil violations no-poach agreements that were formed and terminated before it made those announcements.

That brings us to the present case: On April 3, 2018, the Justice Department filed a civil antitrust lawsuit challenging Knorr and Wabtec’s no-poach agreements. Moreover, the complaint alleged that Knorr and Wabtec entered into similar agreements with rail equipment supplier Faiveley Transport before Wabtec acquired it in November 2016. 

The Justice Department argued that the no-poach agreements between Knorr, Wabtec, and Faiveley restricted competition for U.S. rail industry workers by limiting their access to better job opportunities, restricting their mobility, and depriving them of information that they could have used to negotiate for better terms of employment.

Concurrently, the Justice Department filed a proposed settlement that, if approved by the court, would resolve its competitive concerns by prohibiting Wabtec and Knorr from entering, maintaining, or enforcing no-poach agreements with any other companies, subject to limited exceptions. The proposed settlement also requires Knorr and Wabtec to implement rigorous notification and compliance measures to prevent them from entering into no-poach agreements in the future.

Legal and compliance professionals whose companies have struck solicitation agreements with industry peers would be wise to peruse the complaint against Knorr and Wabtec to gauge their own potential risk of having to challenge a no-poach deal.

And other companies could still be implicated, given that the complaint is part of a broader investigation. In a statement, Assistant Attorney General Makan Delrahim said Knorr and Wabtec must cooperate with the Antitrust Division “in any investigation into additional no-poach agreements to which they may have been counterparties.”

The legal and compliance risk here is loud and clear: Companies must be careful in negotiating solicitation agreements with other employers. Not all solicitation agreements are illegal, but they must be supported by a legitimate business interest transaction or collaboration. Examples include agreements that are reasonably necessary for a merger or acquisition; for the settlement of a legal dispute; or contracts with consultants or recipients of consulting services, outsourcing vendors, recruitment agencies, or providers of temporary employees.

What’s certain, no-poach agreements whose sole purpose is to eliminate competition—commonly referred to as a “naked” restraint—do not constitute legitimate business interest. Consistent with its standards, the Justice Department has repeatedly challenged solicitation agreements deemed to be unlawful, many in the high-tech industry. Apple, Google, Intel, Intuit, Adobe, and Pixar are just a few companies that ultimately agreed to consent decrees terminating their no-poach agreements.

The Justice Department has indicated that it’s more likely to find a solicitation agreement lawful and valid if it not only constitutes a legitimate business interest, but also identifies, “with specificity,” the relevant agreement; identifies the employees who are subject to the agreement; and contains a specific termination date or event.

Legal and compliance professionals whose companies have struck solicitation agreements with industry peers would be wise to peruse the complaint against Knorr and Wabtec to gauge their own potential risk of having to challenge a no-poach deal.