No-poach agreements

No-poach agreements consist of a type of collusion or anticompetitive agreement between competitors that takes place in the labor market.

Specifically, these are agreements where two or more companies agree not to solicit or hire the workers of the other company (to learn more about the analysis of this type of offense, see the investigation by Bugueño and Hernández for CeCo).

This type of pact should not be confused with labor non-compete clauses. While no-poach agreements are made between competing companies, labor non-compete clauses correspond to contractual provisions that limit the freedom of an employee to work on certain activities during his employment relationship or when the employment contract ends. That is, they are agreed upon directly by the employee and employer.

In addition to no-poach agreements, another category of collusion in the labor field are wage-fixing agreements, where two or more firms coordinate on aspects related to the working conditions of their employees, such as their salary.

The anticompetitive nature of these types of agreements is the equivalent of a market-sharing agreement in a product market. However, unlike the latter, no-poach agreements do not affect the market where firms offer their goods or services, but rather the labor market of the involved economic activity, as firms compete to hire qualified workers who can provide services to different competing companies (Hovenkamp, 2019).

In this way, for the purposes of determining the illegality of no-poach agreements, it is irrelevant whether the goods or services produced and/or marketed by the firms are substitutes for each other (see the ‘Antitrust Guidance for Human Resource Professionals’ guide, published by the U.S. Department of Justice and the Federal Trade Commission in 2016). Previously, cases such as California v. eBay, Inc. (2015) in the U.S. had already shown it was irrelevant whether companies participate in different relevant markets—both in terms of the geographic relevant market and the product relevant market— to determine the illegality of a no-poach agreement.

In a competitive scenario where there is no agreement, competition between firms to offer better job positions (higher salaries, benefits, etc.) can directly influence the creation or development of more or better products for consumers.

In this sense, the DOJ and the FTC have noted that:

“Just as competition among sellers in an open marketplace gives consumers the benefits of lower prices, higher quality products and services, more choices, and greater innovation, competition among employers helps actual and potential employees through higher wages, better benefits, or other terms of employment. Consumers can also gain from competition among employers because a more competitive workforce may create more or better goods and services.” (‘Antitrust Guidance for Human Resource Professionals’).

On the contrary, the existence of agreements that restrict the free mobility of workers between firms could generate various anticompetitive effects, especially affecting the ability of workers to leverage such labor mobility to negotiate higher salaries (Hovenkamp, 2019). Along these lines, in our region, the competition authority of Peru (Indecopi) has pointed out that these types of agreements eliminate competition to attract or retain employees, depriving workers of the possibility of obtaining or negotiating better positions or working conditions (Informational Guide on the importance of respecting free competition in the labor field, Indecopi, 2020).

In general terms, no-poach agreements can be classified into two categories (see the investigation by Bugueño and Hernández for CeCo):

• Pure and simple or “naked” no-poach agreements: These are agreements where the agreement is independent of any legitimate collaboration between competitors, or when, while serving a legitimate commercial purpose, the agreement is not limited or specified in the manner necessary to be consistent and proportional to this end.
• Ancillary no-poach agreements: Unlike “naked” agreements, these are contingent upon the development of a commercial transaction or legitimate collaboration between competitors and, furthermore, are reasonably necessary for this main transaction to achieve its purpose.

This distinction has been developed primarily in North American jurisprudence (see section 4), where it has been recognized that the first type of agreement is especially serious and should therefore be analyzed as a per se violation. In simple terms, this means that an agreement of this type will be considered illegal without the need to prove its anticompetitive effects in the affected market, nor the possibility of defending it based on alleged efficiencies.

As indicated, the United States is the jurisdiction that has most extensively developed the analysis of these types of agreements.

In Europe, the subject has been less explored. Some cases related to mergers have addressed agreements that, for a relatively short period, prohibited the seller of a company from rehiring the employees of that company (such as the cases MEI/Phillips (M.2386) and Kingfisher/Großlabour (M.1482)). However, these have been treated as ancillary restraints accompanying the sale of a business, which are normally valid if they do not go beyond what is necessary to protect the buyer’s investment (Hovenkamp, 2019).

In 2016, the DOJ and the FTC jointly published the “Antitrust Guidance for Human Resource Professionals,” describing the anticompetitive behaviors that can materialize in labor markets and the measures that must be adopted to avoid committing such violations (an updated version of said guidance is here).

Prior to the publication of the Guide, in 2010, the DOJ reached a settlement with six major tech companies that had agreed not to solicit or hire each other’s employees —Adobe, Apple, Google, Intel, Intuit, and Pixar. As a measure, the companies committed not to enter into no-poach agreements again. In recent years, the DOJ has also faced cases related to workers in the railroad industry, fast food, and medical schools.

Through the 2016 Guide, the North American competition authorities defined their enforcement policy regarding no-poach agreements: these will no longer only be investigated (and sanctioned) civilly, but their participants could also risk criminal conviction.

Furthermore, as mentioned already (section 3 supra), the Guide also made explicit that naked no-poach agreements are considered per se illegal under Section I of the Sherman Act.

On January 7, 2021, the DOJ announced its first criminal indictment regarding no-poach agreements (see also the CeCo Note “United States: DOJ presents first criminal case of ‘no-poach agreement’”).

The indictment, filed in the Northern District of Texas, was directed against Surgical Care Affiliates (SCA), an operator of a network of health centers, for having agreed with two companies —identified by the DOJ as “Company A” and “Company B”— not to solicit the services of their senior executives.

According to the indictment, executives from SCA and Companies A and B had a series of meetings, conversations, and email exchanges where they repeatedly agreed “not to proactively approach” senior executives, refraining from recruiting them into their respective organizations.

Considering that it was a naked no-poach agreement, the DOJ categorized it as a per se violation of Section I of the Sherman Act.

While this is the first criminal case in the United States for a no-poach agreement, at the end of 2020, the DOJ had already presented its first criminal case of collusion in the labor field, consisting of a wage-fixing agreement involving physical therapists in Dallas.