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26 Antitrust 73 (2011-2012)
No Poaching Allowed: Antitrust Issues in Labor Markets

handle is hein.journals/antitruma26 and id is 277 raw text is: No Poaching Allowed: Antitrust Issues in Labor Markets BY MICHAEL LINDSAY AND KATHERINE SANTON most important asset, but unlike other assets, EMPLOYEES CAN BE A COMPANY'S employees can walk. When an employee walks out the door, the employee takes with him the human capital that results from the joint investment of the employee (through his time and effort) and the employ- er (through its formal and informal training programs- and through the compensation paid to the employee). The employee might also take business relationships and confi- dential information. With employee mobility at an all-time high,' employers might ask how far they can go by agreeing among themselves to limit the kinds of competition they will engage in for employment services. The (unsurprising) answer is not very far. In 2009, the U.S. Department of Justice investigated allegations of such agreements among a number of high-tech companies that restricted their ability to hire each other's employees.2 The investigation resulted in civil complaints against a number of high-tech companies,' followed by settlement agreements - and a federal class action.5 The popular press certainly saw no difference between hiring-restriction agreements and the more familiar (and illegal) practice of price fixing. One head- line referred to it as Tech-Recruiting Collusion,6 and many others referred to the underlying agreements as anti-poach- ing.7 Perhaps poaching was already used to describe com- petition for employees in the high-tech world, but if not, it came to have that meaning.' The resulting DOJ case, along with a follow-on federal class action have highlighted the antitrust aspects of employer competition for employees. So what are the antitrust guides that employers should follow in the non-unionized economy?0 Traditional Post-Employment Covenants Employers traditionally have used both incentives and dis- incentives to keep valued employees from leaving. Incen- tives include compensation (salary, bonuses, benefits pack- ages, and employee-specific perks) and working conditions. Disincentives include post-employment conditions in an employment agreement that make leaving relatively less attractive. For example, an employment agreement might include a non-compete covenant (employee agrees not to pursue a similar profession or trade in competition against the employer within a stated geography for a specified time), a customer non-solicitation covenant (employee agrees not to solicit employer's customers, but is otherwise free to compete, and is free to make unsolicited sales to employer's customers), a co-employee non-solicitation covenant (employee agrees not to solicit former co-employees to leave the company), and confidentiality agreements (employee agrees not to take, use, or disclose employer's confidential information). Each of these disincentives is an agreement between the employer and employee, or in antitrust-speak, between the buyer and seller. As vertical agreements, these employment covenants are unlikely to have any antitrust implications.'0 Employment agreements, however, are not a complete or perfect solution to the problem of protecting an investment in human capital. State law regulates the enforceability of post-employment restrictive covenants, and some states (notably California) severely limit the enforceability of non- compete and non-solicitation agreements. Especially in a state that limits enforceability of vertical agreements (that is, of post-employment covenants with the employee), employers might look to other means to protect their interests. No-Switching Agreements Between Competitors An employer will be particularly concerned if its employee joins or forms a competitor of the employer-that is, switches to a competing employer. After all, that is where the employee's use of knowledge and relationships can hurt the former employer most. Consequently, an employer might be tempted to reach an agreement with its competitors not to hire each other's employees. After all, the employer thinks, this reaches the same result as a perfectly lawful (in most states) noncompete agreement with the employee, and it avoids the messy and fast-paced lawsuit for a temporary restraining order or preliminary injunction for breach of employment covenants. And doesn't Section 6 of the Clayton Act make clear that antitrust laws do not apply to markets for human labor? Agreements Between Competitors. Some employers have tried this approach-and failed. Section 6 clearly does not provide an antitrust exemption for a buyer cartel for labor services. For example, in Nichols v. Spencer International Press, Inc.,'12 two competitors in the sale of encyclopedias and other reference books had a no switching agreement. According to the complaint, under their agreement, these competing firms refused to permit employees or other sales personnel to go to work for competitors ... and .. . refused to hire employees and sales personnel with any other defen- dant or of any other competitor . . . . I' The court rejected the argument that Section 6 immunized this agreement, SUMMER 2012 - 73

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