Keeping you informed

U.S. Justice Department Would Limit Use of Antitrust Laws to Attack ‘No-Poaching' Agreements

    Client Alerts
  • February 08, 2019

As previously reported in EmployNews, in recent years state attorneys general and private plaintiffs have initiated legal actions against companies that require their franchisees to sign employee “no-poaching” agreements. These agreements prohibit one franchisee from hiring away employees of another. The plaintiffs argue that this practice unfairly depresses wages by preventing employees from leaving or threatening to leave for another job within the same franchise. Among other grounds, these actions have used federal antitrust laws as the basis for their legal claims against this practice.

Last month, the federal Department of Justice threw a possible wrench into these arguments by taking a position in an antitrust case filed against several fast food chains. DOJ now asserts that employee no-poaching agreements only constitute a per se violation of federal antitrust laws when they are made between competitors. When the agreements involve non-competitors such as co-franchisees, DOJ says that they are only illegal if proven so under a tougher “rule of reason” standard. This test requires the plaintiffs to overcome arguments that the agreements are based on legitimate business cooperation between the two franchisees, or similar arguments.

Federal courts hearing these lawsuits are not bound by the new DOJ position. However, if courts defer to the agency’s interpretation of antitrust laws, plaintiffs attacking no-poaching agreements among franchisees could have a considerably more difficult task proving illegal conduct.