No poach agreements: What’s the big deal?

We expect the trend of antitrust agencies around the world looking at no poach agreements to continue – particularly given the purported prevalence of such arrangements as a matter of standard HR practice within a number of industries.

- Douglas Tween
What are “no poach agreements” and why is everyone talking about them? These are agreements not to solicit another company’s employees, or to fix wages or other terms of employment. In each case, the employees don’t know about the agreements, which are “secret”. The agreements potentially restrict competition by preventing companies from recruiting or competing for employees by offering more competitive remuneration or employment terms. 

The U.S. authorities have so far grabbed most of the headlines regarding no poach agreements. In October 2016, the Department of Justice and the Federal Trade Commission issued joint guidance, putting employers on notice that going forward the DOJ would proceed criminally against no-poach and wage-fixing agreements, punishable by fines of up to $100 million and up to 10 years’ imprisonment. These were previously pursued as civil violations and were usually settled with commitments to put an end to the agreements; for example, in 2010, the DOJ filed civil lawsuits against six large technology companies (including Apple and Google) and settled with no fines.

Although the DOJ is yet to bring a criminal prosecution, it is understood that a number of investigations are underway. Indeed, as Deputy Assistant Attorney General for Civil Antitrust Barry Nigro said recently: “It is a little bit shocking to see how common it is”. Several of the new investigations have arisen during the course of merger reviews; for example, Wabtec/Faiveley in 2015, where the parties ultimately settled with the DOJ. Meanwhile, the Washington state Attorney General recently reached settlements with various fast food chains including McDonald’s and Jimmy John’s in relation to no poach obligations in franchise agreements.

But no poach issues aren't just receiving attention in the U.S. In Japan, the Japan Fair Trade Commission published a report in February 2018, which assesses hiring practices for service providers and sets out when behaviour might be problematic. It's not yet clear what the next steps might be. Meanwhile in Hong Kong, following numerous complaints, the Hong Kong Competition Commission has published an Advisory Bulletin.

In Europe, several national competition authorities (including in Spain, the Netherlands and Croatia) have investigated no poach deals, including those made in the freight forwarding, hospitals and IT employment sectors. While the European Commission hasn’t previously looked at no poach agreements, there is clearly potential for them to fall foul of EU antitrust laws in the same way as other agreements that may be found to restrict competition.

The trend of antitrust agencies looking at no poach and wage fixing agreements is gaining momentum around the globe and we expect this to continue – particularly given the purported prevalence of such arrangements as a matter of standard HR practice within a number of industries. Nor are potential violations limited only to agreements with respect to wages – agreements among companies on any benefits, terms or conditions of employment could be subject to an enforcement action. In view of the serious nature of the possible penalties – in particular, criminal sanctions in the U.S. – companies and their HR officials should bear in mind as much as ever that their employee contracts have the potential to violate competition laws.