Employee no-poaching contract provisions can lead to criminal prosecution, say DOJ and FTC

Some services contracts include no-poaching / no-solicitation pro­vis­ions saying, in effect, “Customer won’t hire Provider’s em­ployees, and vice versa.”  A blanket agreement like that, not in conjunction with a contract of that kind, caused serious trouble for a number of Silicon Valley companies. Now, the Justice Department and FTC have announced a policy of bringing criminal charges against employers and individuals involved in certain agreements of that nature. Excerpt:

Naked wage-fixing or no-poaching agreements among employers, whether entered into directly or through a third-party intermediary, are per se illegal under the antitrust laws.

That means that if the agreement is separate from or not reasonably necessary to a larger legitimate collaboration between the employers, the agreement is deemed illegal without any inquiry into its competitive effects.

Legitimate joint ventures (including, for example, appropriate shared use of facilities) are not considered per se illegal under the antitrust laws.

(Emphasis and extra paragraphing added added.)

This, of course, leaves the door open to scrutiny of all no-poaching provisions under a rule-of-reason analysis.

So, drafters and reviewers of services contracts will want to give careful thought to proposing or agreeing to include such provisions.

(Hat tip:  this ABA update.)