Why Multinationals Need to Beware No-Poach Agreements
By Rosie Ranauro, Senior Associate, HR Advisory
Until recently, antitrust laws have not been on the average HR professional’s radar. Antitrust regulations are, after all, usually focused on products and markets, not employees.
Things are changing quickly, however, and some recent enforcement actions make clear that any human resources department that is not up on evolving regulations and enforcement trends in the US and worldwide could find itself in legal trouble.
This is particularly the case with “no poach” agreements, where businesses agree, formally or informally, not to solicit each other’s employees. Such agreements have the intent of keeping talent and information from walking out the door — and have the additional effect of depressing wages in jobs subject to such agreements.
These agreements are being closely looked at by the US Department of Justice’s Antitrust Division, leaving companies that are out of compliance vulnerable to legal action. In October 2016, DOJ and the Federal Trade Commission jointly issued the Antitrust Guidance for Human Resources Professionals (Guidance), addressing such agreements in some detail. The Guidance notes that HR professionals are best positioned to ensure compliance with these regulations.
A Brief History of the Antitrust Division’s Actions on “No Poach”
In 2010 the Department of Justice’s Antitrust Division sued several tech and media companies over agreements the companies had made not to solicit each other’s employees. The Division settled those complaints, but was clear that it regarded no-poach agreements between employers as antitrust violations.
No-poach agreements are “naked” if they don’t have any relation to more substantive business collaboration agreements between companies, and are intrinsically violations of the Sherman Act. They are regarded as having the same effect as agreements to fix prices.
With the 2016 Guidance, the Division announced that from that point forward, it would proceed criminally against naked no-poach agreements. That could mean large fines and even jail time.
Agreements made before the Guidance would not be grandfathered, and would also be subject to criminal investigation and prosecution, and those formed and terminated before that could be pursued as civil violations, at prosecutor discretion.
After the 2016 presidential election, there was a certain expectation that the previous administration’s shift from civil to criminal enforcement would be reversed, but this does not appear to be the case. Criminal enforcement will continue to be a possibility.
The Knorr/Wabtec Case
At the beginning of April 2018, the Antitrust Division filed a civil antitrust lawsuit against Knorr-Bremse AG and Westinghouse Air Brake Technologies Corp. (Wabtec), two large rail equipment suppliers, for agreeing not to compete for each other’s employees, including project managers, engineers and other specialized staff. At the same time the Division filed a proposed settlement.
The settlement sends a signal that the Division will be enforcing antitrust laws in labor markets. This case was not criminal, but the Division was clear that future cases might well be, and that we should expect to see more announcements of investigations.
Multinationals should also note that, as the DOJ press release makes clear, Knorr-Bremse AG is a privately-owned German company headquartered in Munich. The settlement is a reminder, then, that organizations operating across borders are subject to the laws of multiple jurisdictions, not just those of their home country.
From DOJ to Hong Kong and Beyond
Anti-poaching laws are not limited to the United States, and other jurisdictions are also implementing new antitrust regulations. In April 2018, the Hong Kong Competition Commission published its own Advisory Bulletin on anti-competitive practices, including no-poach agreements. The Bulletin is clear that businesses that compete for specific employee types are regarded as competitors, whether or not their actual products or services are competitive with each other.
The consequences of noncompliance can be as high as 10 percent of a company’s turnover in Hong Kong, fines for implicated staff and disqualification for directors.
Such agreements constitute illegal cartels in most other jurisdictions as well, including the EU. The Japan Fair Trade Commission has indicated it too is examining this issue.
The Central Bank of Ireland is investigating a whistleblower report that three Italian asset management companies based in the country have a no-poach agreement to suppress wages and reduce staff turnover.
Specific Provisions That Protect Employers Are Still Possible
There are situations where no-poaching agreements are still valid, but they are narrow, and the language of the provisions needs to be considered carefully.
In many jurisdictions anti-poaching agreements are valid as part of a sale, to protect the interests of the buyer. They prevent the seller from immediately soliciting the employees to leave, which would seriously impact company value.
Such provisions are also generally regarded as valid for the duration of joint ventures, to allow employees of more than one company to work together freely.
The Consequences for HR
In the past, HR staff was not typically included in antitrust training. Going forward, HR professionals will need to be aware of any potential violations of US or applicable non-US antitrust regulations, particularly where non-compete clauses may be folded into employment contracts. As we’ve seen, these laws evolve, so HR must also keep up-to-date with any changes.
HR can be put under pressure by senior executives who make informal agreements with their peers and then expect HR to act in accord with them. But the consequences of such acquiescence have grown more serious, and providing informed council to leadership will be imperative.
This trend towards enforcing antitrust regulations, including no-poach agreements, is global and only becoming more common. HR will need to play its full role in preventing antitrust enforcement actions.