Background
‘No-poach’ agreements between businesses not to compete with each other for employees have long been held unlawful under Section 1 of the Sherman Antitrust Act, which prohibits certain restraints on trade and competition. Historically, the Department of Justice (“DOJ”) has filed civil enforcement actions against businesses entering into no-poach agreements with other businesses.
In October 2016, however, DOJ and the Federal Trade Commission (“FTC”) issued joint Antitrust Guidance, establishing a stronger stance on enforcement actions and putting businesses on notice that ‘naked’ no-poach agreements (between competing employers not to solicit, recruit, or hire each other’s employees or to compete on terms of compensation) are illegal. The Guidance threatened severe consequences for business entering into such agreements: civil enforcement actions, criminal prosecution, and the prospect of treble damages for individuals harmed by such agreements. This joint Antitrust Guidance spurred activity by states’ attorneys general and private litigants regarding no-poach agreements, and into the first quarter of 2019, no-poach agreements remain frequent focus of litigation.
In the first case filed by DOJ since the Antitrust Guidance was issued, the Departments’ Antitrust Division alleged that the defendant railroad equipment suppliers had agreed not to poach each other’s employees from 2006 through 2015 in violation of Section 1 of the Sherman Act. This action resulted in the defendants entering into a consent decree under which the companies agreed to stop entering into, maintaining, or enforcing any unlawful no-poach agreements. U.S. v. Knorr-Bremse AG, 2018 WL 4386565 (D.D.C. Jul. 11, 2018). On the heels of the consent decree, more than fifteen private lawsuits were filed by current and former employees. These actions were consolidated in the Western District of Pennsylvania. In re: Railway Industry Employee No-Poach Antitrust Litig., 2:18-mc-00798 (W.D. Pa., Feb. 8, 2019). Following oral argument on February 25, 2019, the defendants’ joint motion to dismiss remains pending.
State Enforcement Efforts and Private Litigants Gain Traction
DOJ’s enforcement initiative appears to have sparked several states to undertake investigations and enforcement actions against no-poach agreements in a variety of industries. In particular, Washington State Attorney General Bob Ferguson has led the effort to deter no-poach agreements among employers. In January 2018, Ferguson’s office opened an investigation into no-poach agreements used by franchise businesses in Washington state. Since that time, Ferguson’s office has entered into agreements with over 50 national chains operating in the state. Under these “Assurance of Discontinuance” agreements, the franchise chains agreed to stop enforcing existing no-poach provisions, to remove no-poach clauses from agreements in Washington within 120 days, and to remove such clauses from their contracts nationwide as they come up for renewal.
Several other states have emulated Ferguson’s efforts. On July 9, 2018, a coalition of attorneys general from ten states—California, Illinois, New York, Maryland, Massachusetts, Minnesota, New Jersey, Oregon, Pennsylvania, Rhode Island, and the District of Columbia—sent a letter to eight franchise-based fast food chains requesting information related to no-poach provisions in their franchise agreements.
While investigations into the practices of three of the chains (Burger King, Popeye’s, and Panera) are still underway, and while one of the chains (Wendy’s) denied ever using no-poach provisions in its franchise agreements, four of the chains (Dunkin’ Donuts, Arby’s, Five Guys, and Little Caesars) entered into a...
