DOJ Cracks Down on No-Poach Agreements

By Susan Milner Parrott and Kerry Shad

On April 3, 2018, the Department of Justice (DOJ) announced that it had “reached a settlement with Knorr-Bremse AG and Westinghouse Air Brake Technologies Corporation, two of the world’s largest rail equipment suppliers, to resolve a department lawsuit alleging that the companies had for years maintained unlawful agreements not to compete for each other’s employees.” According to the DOJ, its action against the companies was “part of a broader investigation by the Antitrust Division into naked agreements not to compete for employees – generally referred to as no-poach agreements.” The DOJ stated that the no-poach agreements at issue in the Knorr case restrained competition for rail industry workers, “which limited their access to better job opportunities, restricted their mobility, and deprived them of competitively significant information that they could have used to negotiate for better terms of employment.” 

The DOJ’s lawsuit against the rail equipment companies and the proposed judgement in that case confirm the DOJ’s position that, under the anti-trust laws, agreements among employers not to recruit certain employees or not to compete on terms of compensation can be illegal. As the DOJ and the Federal Trade Commission stated in their jointly issued Antitrust Guidance for Human Resource Professionals (October 2016):

“An individual is likely breaking the anti-trust laws if he or she:

• agrees with individual(s) at another company about employee salary or other terms of compensation, either at a specific level or within a range (so called wage-fixing agreements), or
• agrees with individual(s) at another company to refuse to solicit or hire that other company’s employees (so-called 'no poaching' agreements).”

In the proposed final judgment filed as part of the settlement reached on April 3, the DOJ explains that the companies in that case could have agreements not to solicit or hire another’s employees if such agreements were reasonable and “ancillary to a legitimate business collaboration.” The proposed judgment specifies that such a reasonable ancillary agreement should: “(1) be in writing and signed by all parties thereto; (2) identify, with specificity, the collaboration to which the agreement is ancillary; (3) be narrowly tailored to affect only employees who are anticipated to be directly involved in the Agreement; (4) identify with reasonable specificity the employees who are subject to the Agreement; and (5) contain a specific termination date or event.”

On April 11, 2018, a proposed class of current and former employees of the companies named in the Knorr-Bremse case filed a lawsuit against those companies alleging that the no-poach agreements violated the anti-trust laws and seeking treble damages. The Knorr-Bremse case should serve as a reminder to employers to insure that their human resource professionals and other company executives understand that they may be subject to anti-trust laws if they engage in behavior that could be considered to be wage-fixing or agreeing not to poach employees from another employer and that they could be subject to criminal prosecution under those laws.