Antitrust, Labor / Employment, On The Job

Company 'Anti-Poaching' Or 'Non-Solicit' Agreements Are Illegal And Awful

What can an employer (legally) do to avoid employees leaving in droves for greener pastures?

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stop sign businessman holding up hand stop gestureA few years ago, I had a client tell me they had a “gentleman’s agreement” with a competitor to not poach one another’s employees, and this competitor had broken the agreement. The client wanted to know what I, an employment lawyer, could do about it.

My first question: is there any proof of this agreement? Fortunately there was not, and my blood pressure returned to normal levels. Because it’s illegal to have an agreement not to recruit a competitor’s employees. I explained how such an agreement can’t be enforced, and strongly advised that the client abandon all ideas of such an agreement, because either you are about to see a massive lawsuit or you are about to get all your really good employees stolen. (Thankfully he was getting all his really good employees stolen.)

A topic I’ve covered here, and often cover in real life, is noncompetes. I don’t like them. Instead, I like the way California does things: if you have something worth protecting, like a trade secret or intellectual property, it’s protectable. But your employee can work where they want to. All noncompetes do is prevent people from jumping jobs in a way that keeps wages down.

In fact, I think this is all that limitations like noncompetes or “agreements” regarding poaching are really good for. People are afraid to move because they don’t want to get sued. They are literally at jobs they hate so they won’t get sued! And companies with their “agreements” not to poach or solicit are even worse.

Competition is good for wages. It’s also good for customers and the market in general. Look at what competition does to the prices for technology, or the innovation for desirable goods and services.  So called “poaching” agreements (often called “nonsolicit” agreements) are intended to end wage competition, and alter the market in unhealthy ways. Because employers want to pay their employees the least possible amount, but still provide the same crappy service, and poaching gets in the way of the low-wage goal and encourages innovation.

Which brings me to the a recent case on the subject, Nitsch v. Dreamworks Animation SKG Inc.. In this case, the plaintiff filed an antitrust suit against DreamWorks, alleging that the company and many of its competitors were violating federal law in an attempt to suppress wages. The plaintiff later added The Walt Disney Company, Pixar, Lucasfilm Ltd., LLC, and Two Pic MC LLC (curiously, all the Disney companies). The suit was filed in 2014, but the settlement was just approved, with a huge haircut in legal fees for the lawyers. Even with the haircut, they made out like bandits.

This whole debacle allegedly started when Lucasfilm and Pixar reached an agreement to not poach one another’s workers. According to the lawsuit, the agreement then spread to all the Disney companies, in the form of non-solicit agreements.

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The Department of Justice investigated the situation in 2010. But a judge didn’t approve the DOJ’s settlement, because the judge didn’t feel certain bad actors paid enough into it. Robert Nitsch’s suit picked up where that left off. These suits don’t die, people. Lawyers smell blood in the water. Millions of dollars of blood. In fact, like wage claims, cases that involve violations of the Sherman Act are sure to be super-expensive and possibly business-destroying.

So what can an employer do to avoid employees leaving in droves for greener pastures? Do not enter into any “agreements” with your competitors about soliciting or poaching workers. Instead, try these three things instead:

  1. Be a good place to work. Seriously, people will take earning less and having better working environments.  But this isn’t the stuff of gimmicks. Chief Happiness Officers don’t necessarily make a workplace more pleasant or desirable for employees.  Instead, pay people fairly but also make work enjoyable. Be flexible. Be reasonable. Don’t promote jerks.
  2. Make sure that someone isn’t using your confidential information to hire away your best employees. Believe it or not, some of the most confidential information a company has is their pay structure. Outside of law firms with lockstep associate compensation, most companies work hard to keep pay information confidential, and information regarding how they calculate pay even more confidential. Did your Chief Financial Officer or Chief Operations Officer leave recently? That angry exit might be the reason you are losing a lot of your good people. That former employee has your secret sauce. If this sounds familiar, talk to a good employment lawyer.
  3. Hire the right people. It really is true that every job isn’t for everyone. Be honest about who should be working for you. And either (a) only hire that type of person or (b) change up the work culture to be the place that your ideal hire will thrive.

But what if you are a worker bee and have a sneaky suspicion that your employer is engaging in shenanigans?  Or what if you think you may have signed a five-year noncompete with a geographic reach of the entire world?

  1. Talk to an employment lawyer about whatever it is you signed. Odds are, unless you do know the recipe for Coke or you manage a multi-million-dollar business team, that non-compete isn’t enforceable as written. Furthermore, many employers will allow an employee to negotiate a way out of a noncompete. And nothing should be enforceable for five years (unless you just sold the recipe to Coke and are going back into the soda industry!).
  2. Get an inside source. The way that anti-poaching agreements became public is someone high up talked. Allegedly, Steve Jobs would do his anti-poaching agreements over the phone. Invest time in relationships with people in the know to truly learn about what goes on in an industry.
  3. Only work where you feel valued. I probably sound like a broken record now, but it is really important for people to work where they feel valued, because ultimately it’s where they will be paid what they are worth in an environment where they can thrive. You shouldn’t be miserable at work. Don’t just say because you don’t want to get sued. Make a plan, and get out of there!

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I hope, as an eternal employment-law optimist, that no-poaching agreements are rare. I say this not only because such agreements violate federal law. I say this because I know that every employer wants the best talent they can get, and that talent is often at a competitor. So worker bees, focus on doing work you enjoy in a place where you are valued and can grow, and go where that joy takes you.

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