Take Care With No-Poach Practices and Non-Solicitation Agreements
The past few years have seen increased scrutiny of practices and agreements (and employers that use them) that are viewed by some as anti-competitive, including no-poach agreements and non-solicitation agreements. The scrutiny is not limited to California regulators and courts, nor is this a matter limited to civil litigation.
In January 2021, the Department of Justice (“DOJ”) initiated its first-ever criminal case involving “no-poach” agreements. (U.S. v. Surgical Care Affiliates LLC et al., 3:21-cr-00011.) The indictment, which follows an investigation conducted by the DOJ’s Antitrust Division, alleges that Surgical Care Affiliates LLC (and its successor entity, Scai Holdings, LLC) entered into agreements with at least two other competing healthcare companies whereby they would not recruit or solicit the other’s senior-level employees. Historically, such agreements were the target of civil enforcement actions by federal agencies, but a shift in the enforcement position of the federal antitrust agencies became clear in October 2016, when the DOJ Antitrust Division and the Federal Trade Commission (“FTC”) jointly published a document titled “Antitrust Guidance for Human Resources Professionals” and made clear that they would proceed criminally against companies entering into wage-fixing or no-poaching agreements.
The federal DOJ is not alone in targeting no-poaching agreements and practices. In March 2019, California’s Attorney General Xavier Becerra announced the outcome of the Golden State’s involvement in a multi-state effort to take action against businesses utilizing “no-poach” policies – specifically, four dining franchise corporations. Massachusetts, Illinois, Iowa, Maryland, Minnesota, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, and the District of Columbia are also parties to settlement agreements entered into with Arby’s, Dunkin’ Donuts, Five Guys, and Little Caesars, in which these eateries agreed to eliminate the use of no-poach provisions in their US franchise agreements.
It should then come as no surprise that there has also been an uptick in private litigation attacking non-solicitation agreements, which, like no-poach agreements, are often viewed as anti-competitive in that they restrict employee mobility. For example, in AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., 28 Cal. App. 5th 923 (Ct. App. 2018), the Court invalidated an agreement that allegedly sought to prevent certain employees from engaging in post-employment solicitation of the plaintiff’s employees (or employees of any of its company affiliates) because, according to the Court, the agreement essentially prevented the employees at issue from practicing in their chosen profession, which directly involved recruiting (soliciting) travel nurses. Shortly thereafter, in Barker v. Insight Global, LLC, 2019 U.S. Dist. LEXIS 6523, 2019 WL 176260 (N.D. Cal. Jan. 11, 2019), another case that involved a staffing agency, a federal district court indicated that California law has invalidated employee non-solicitation agreements. The Barker decision was rendered because the plaintiff sought reconsideration of a July 2018 ruling on the non-solicitation provision (in the defendant employer’s favor) due to an intervening “material change in the law” – namely, the AMN decision. Following AMN and Barker, a number of cases have gone even further, invalidating non-solicitation provisions even when the employees at issue were not involved in recruiting. (See, e.g., WeRide Corp. v. Kun Huang, 379 F.Supp.3d 834 (N.D. Cal. Apr. 1, 2019).) On the other hand, at least two federal district court cases (including one out of the same court that decided Barker and WeRide) declined to adopt the view of non-solicitation agreements reflected in AMN and its progeny (see, e.g., Solutionz Videoconferencing Inc. v. Davidson, 2019 U.S. Dist. LEXIS 217493, 2019 WL 6872904 (Aug. 22, 2019); Hamilton v. Juul Labs Inc., 2020 U.S. Dist. LEXIS 166718, 2020 WL 5500377 (N.D. Cal. Sept. 11, 2020)).
No one should be surprised if the trend against employers’ no-poach and non-solicitation efforts continues. Indeed, President Biden ran on a platform that includes “[e]liminat[ing] non-compete clauses and no-poaching agreements that hinder the ability of employees to seek higher wages, better benefits, and working conditions by changing employers.” Employers should carefully review agreements with their employees, as well as any agreements they might have with other employers in their field relating to employment of their competitors’ employees. Employers might want to re-think provisions in these agreements to the extent that they could be viewed as anti-competitive.