Ending ‘No-Poaching’ Deals

HR leaders should be on high alert for any anti-competitive hiring practices after a DOJ settlement in a "no-poaching" case.
By: | April 19, 2018 • 5 min read

The Department of Justice announced a settlement earlier this month that required two employers to end their “no-poaching” agreement, its latest move aimed at eliminating anti-competitive practices of U.S. employers.

By their nature, such agreements—primarily related to recruiting, compensation and benefits—stifle wages and benefits, to the detriment of employees and market competition, experts say.

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The two companies—Knorr-Bremse AG and Westinghouse Air Brake Technologies Corporation (aka Wabtec)—agreed to end their pact after the DOJ alleged the companies reached agreement as early as 2009 not to solicit, recruit, hire  or otherwise compete for employees without prior approval.

The DOJ’s complaint included a letter dated Jan. 28, 2009, from a director of Knorr-Bremse to a senior executive at Wabtec: “[Y]ou and I both agreed that our practice of not targeting each other’s personnel is a prudent cause for both companies. As you so accurately put it, ‘We compete in the market.’ ”

The settlement was the first since the DOJ released guidelines on the topic in 2016.

“The unlawful no-poach agreements challenged today restrained competition for employees and deprived rail-industry workers of important opportunities, information and the ability to obtain better terms of employment,” said Assistant Attorney General Makan Delrahim of the Justice Department’s antitrust division in a statement announcing the action April 7. “Today’s settlement will restore competition for employees in the U.S. rail industry.”

Wabtec said in a statement that it had settled even though it committed no wrongdoing. “We firmly believe that our recruiting policies have been consistent with the antitrust laws and have in no way diminished competition for talent in the marketplace,” the company said. “We have elected to settle this matter to avoid the cost and distraction of litigation.”

Workplace-law experts say that after a large civil settlement between the federal government and big tech employers including Intel, Adobe, Apple and Google in 2015, HR leaders were again put on notice in late 2016 that the U.S. Department of Justice and the Federal Trade Commission were looking to put an end to anti-competitive “no-poach” agreements.

The DOJ issued a document in 2016, titled Antitrust Guidance for Human Resource Professionals, specifically focused on educating HR professionals how to avoid getting into hot water by using “no-poach” agreements. According to the DOJ guide, for example, employers that agree not to recruit each other’s employees and set compensation levels to make it less attractive for employees to jump ship would be prosecuted for violating antitrust laws.

The DOJ guide also states that an HR professional should avoid entering into agreements regarding terms of employment with firms that compete to hire employees, and it doesn’t matter “whether the agreement is informal or formal, written or unwritten, spoken or unspoken.”

But if employers believed the arrival of a business-friendly presidential administration in Washington would put the issue on the back burner, they were wrong: In January 2018, the DOJ’s antitrust division announced it would file criminal charges against employers (and in some cases individual executives) who engaged in such behavior.

In his statement announcing the settlement, Delrahim said that if a DOJ investigation uncovers a naked wage-fixing or no-poaching agreement, the agency may, in the exercise of its prosecutorial discretion, bring felony criminal charges against the culpable participants in the agreement, including both individuals and companies.

So where does that leave HR leaders and practitioners? According to legal experts, it provides a great opportunity to both end any such existing agreements and ensure that such agreements don’t happen in the future.

“HR leaders and executives need to make sure that they don’t inadvertently enter into what the Justice Department might interpret as a no-poach agreement,” says Dan Forman, partner and chair of the unfair competition and trade secret practice group at Carothers DiSante & Freudenberger. “And that can include verbal agreements, written agreements, a series of emails with competitors, even an informal conversation at a conference.”

HR leaders should take proactive steps to make sure that such agreements are not happening, Forman says, including conducting an audit with the help of counsel to make it easier to manage the risk.

“The big takeaway that I saw in this recent settlement is the DOJ saying, ‘We put everybody on notice in 2016 when we issued antitrust guidance for HR professionals. So, no excuses.’ ” Forman says.

Mark Krotoski, a partner at Morgan Lewis, agrees that the new enforcement efforts have been targeted and directed at HR professionals.

“That’s important because they are raising antitrust issues, and most HR executives are not accustomed to antitrust standards,” says Krotoski, who co-authored a client alert on the issue. “It’s very significant, and it requires a greater awareness and training, so HR can be sensitive with these issues should they happen. What’s mainly different here is the DOJ announcement that they will be enforcing this both civilly and criminally.”

Fred Foulkes, a professor at Boston University’s Questrom School of Business and director of the school’s Human Resources Policy Institute, said that this issue, until quite recently, received very little attention within HR.

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“This is an area where HR professionals need to be educated because any discussion of this type of anti-competitive behavior is risky,” he says, adding that conferring with counsel is a smart step toward avoiding this type of legal issue.

“While it’s certainly frustrating—losing talented people to companies a few miles away—employees [and candidates] can’t be restrained that way,” Foulkes says, adding that it’s also “absolutely critical” to get the message out to hiring managers.

“They are the people who have to be educated and trained,” Foulkes says.

A “no-poach” strategy should be treated in the same manner in which employers arerefocusing their approaches to sexual-harassment training to send a strong message that such behavior won’t be tolerated, Foulkes adds.

“I go to a lot of HR professional meetings and conferences, but I’ve never seen this topic on the agenda,” Foulkes says. “With these recent developments from the DOJ, that’s going to change.”

Tom Starner is a freelance writer based in Philadelphia who has been covering the human resource space and all of its component processes for over two decades. He can be reached at [email protected]

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