Many companies use non-compete, non-solicitation and confidentiality agreements with their employees because they find it difficult to retain good talent and hiring and training replacements is costly. Departing employees might take trade secrets or other confidential information, or continue to use relationships with their former employer’s customers and suppliers. Enforcement of these agreements can require expensive litigation, and some courts will not enforce them, or may re-write them. As a result, some companies enter similar agreements with other companies.
Under the federal Sherman Antitrust Act, agreements between companies not to recruit or hire each other’s employees are illegal unless they fit within very narrow exceptions. A “naked” agreement between competing employers promising not to hire each other’s employee is illegal. Even sharing information about compensation or other terms of employment can be unlawful. Wage surveys conducted and shared among industries have resulted in legal action by the US Department of Justice (DOJ).
The DOJ’s Antitrust Division and the Federal Trade Commission (FTC) jointly published an “Antitrust Guidance for Human Resource Professionals” makes it clear that agreements limiting hiring between employers that compete for the same employees is a per se antitrust violation and can result in civil and criminal liability. Agreements between employers to limit employees’ wages or benefits are also illegal.
In April 2018, the DOJ filed actions against American, German & French companies that allegedly entered into no-poaching agreements to not recruit or hire each other’s employees. On May 17, 2018, a deputy assistant US attorney general told attendees at an ABA healthcare conference that the DOJ is investigating potential criminal antitrust violations in the form of no-poaching agreements in the healthcare field.
Not every agreement between companies regarding employees is prohibited, but given the DOJ’s aggressive position, companies are advised to have competent legal input before entering such agreements.