One substitute for non-competes with employees is a no-hire agreement with competing employers. As the continuing litigation toll in the Silicon Valley illustrates, that option is illusory:

• the most recent class action accuses Dreamworks and other animation companies of conspiring to fix workers’ pay by refusing to hire from competitors (Nitsch v. Dreamworks Animation SKG Inc. et al., Case No. 5:14-cv-04062 (N.D. Calif.);

• another recent anti-poaching action brought against Pixar (Cano v. Pixar et al., Case No. 5:14-cv-04203 (N.D. Calif.) alleges that defendants conspired by agreeing not to “cold call” each other’s employees; and

• Google, Apple, and Intel are appealing a judge’s decision rejecting a proposed $324.5 million settlement for a class of 64,000 employees in a parallel case involving software engineers.

In each case, plaintiffs claim that companies illegally agree to refrain from poaching each other’s employees, thereby eliminating wage-bidding wars while reducing employees’ job opportunities and salaries. Some of these agreements allegedly date back to the 1980s between George Lucas and Steve Jobs.

Legally, such anti-poaching/anti-solicitation agreements are pleaded as violations of the Sherman Antitrust Act, the Clayton Antitrust Act and various state antitrust or fair competition laws. While antitrust law normally focuses on restraints in a product market, it also applies to the less common allegation of restraints in labor markets[1].

So, apart from the obvious[2], how do employers avoid becoming named as defendants in 100-million dollar plus antitrust class actions?

  • Do not create ‘do-not-hire’ or ‘do-not-cold-call’ lists. This holds true whether the list is in writing or communicated orally.
  • Know why you are not hiring someone from a competitor. Where few or no candidates from competitors are hired, it is helpful to document lawful reasons for rejecting such applicants.
  • Do not share compensation information with competitors. Do not trade compensation ranges or caps with other entities in the industry.[3]
  • Be extra careful in California. This litigation tsunami is localized in the Silicon Valley for a reason: California’s virtual ban on non-compete agreements. From a neutral mountaintop, these high-tech businesses are being accused of doing what their peers outside of California routinely do via non-competes through a clever workaround. The problem, of course, is that the workaround has its own separate bug: the antitrust laws.

[1]   There are two important exemptions from antitrust laws with respect to labor markets, one statutory (formation of labor unions) and the other nonstatutory (collective bargaining). With respect to the statutory exemption, the Clayton Act, 15 U.S.C. sec. 17 (1988), provides “[n]othing contained in the antitrust laws shall be construed to forbid the existence and operation of labor…organizations, nor shall such organizations, or the members thereof, be held or construed to be illegal combinations or conspiracies in restraint of trade, under the antitrust laws.”  Following the enactment of the National Labor Relations Act,, the U.S. Supreme Court recognized a nonstatutory exemption to protect employers from antitrust violations based on “a proper accommodation between the congressional policy favoring collective bargaining under the NLRA and the congressional policy favoring free competition in business.” Connell Constr. Co. v. Plumbers & Steamfitters Local Union No. 100, 421 U.S. 616, 622 (1975).  This is why anti-poaching agreements work for the NBA or the NFL: those are sheltered by collective bargaining agreements from antitrust scrutiny.

[2]   Reading this footnote proves that you are overly diligent: congratulations!  The obvious rule is simple: do not enter into anti-poaching or anti-solicitation agreements with your competitors.  This includes the gentlemen’s agreement with no paper trail or the Pythonesque “nudge, nudge … know what I mean?” attempts to build a conscious parallelism.

[3]   This is a separate but related antitrust issue.  Currently, it has been most visibly litigated with respect to hospitals, where courts have confirmed that sharing information such as salaries by competitors can create antitrust exposure.  See e.g., Cason-Merenda v. Detroit Medical Center, 862 F. Supp. 603 (E.D. Mich. 2012) (hospital sharing of wage information for nurses); Fleischman v. Albany Medical Center, 728 F. Supp. 2d 130 (S.D. N.Y. 2010) (direct coordination by HR personnel of current and future wages).