Many of you require your employees to sign employment agreements with restrictive covenants, also known as non-competes.(Click here, here and here for review.) You may be vigilant about enforcing your non-competes. You may go as far as advising competing employers who hire your employees about the non-compete; you might even file suit and name the employer as a co-defendant. What if you wanted to be more proactive? What if you and one or more of your competitors wanted to head off such issues and instead you enter into an agreement that you will not solicit or hire each other’s employees (“non-poaching”, non-solicitation or “no-hire” agreements). What if you want to go further and agree to salary amounts and ranges so that employees are not tempted to leave you in the lurch? Better not. These types of agreements might violate antitrust laws, and might get you in trouble with the Federal Trade Commission (FTC) the US Department of Justice (DOJ) and other federal and state agencies (and private individuals). Come again? What are antitrust laws? Aren’t they designed to prevent big conglomerates from taking over and controlling an industry? What do they have to do with businesses wanting to maintain goodwill and friendly relationships? Let’s learn, after the jump…
(image from antitrustlaws.org)
If you are like many people, you get intimidated when you hear words like “antitrust”, and you might even want to shut down or run the other way. OK, deep breath. Relax. We’re going to break this down and make it understandable . It’s too important not to. So here’s where we start: What are antitrust laws and what do they do? In a nutshell, anti-trust laws are federal and state laws that regulate conduct of businesses to ensure fair competition for the benefit of consumers. The main bodies of law in this area are The Sherman Antitrust Act of 1890, The Clayton Act of 1914 and the Federal Trade Commission Act of 1914. These laws are designed to restrict the formation of cartels and practices regarded as a restraint of trade. They restrict mergers and acquisitions that could substantially interfere with fair competition, and they also prohibit creation of monopolies and abuses of monopoly power. In other English-speaking countries they are called competition laws. Now, there are exceptions, such as utilities or the Postal Service, and when a person or entity has a patent, copyright or other intellectual property rights or unions. We really don’t need to be concerned about that here though. OK, so far so good. Let’s move on.
What do these anti-trust laws have to do with how you might deal with your employees– or how you and other businesses might agree to deal with employees? For that matter, aren’t you allowed to have employees sign non-competes? If so, why is it OK to enter into such agreements with employees and not other businesses? OK, let’s answer these questions in reverse order. You may recall from previous posts that courts analyze non-competes under a reasonableness standard. If the non-compete is overbroad, courts will not enforce them. Valid non-competes are about curbing unfair competition. An employee uses knowledge of confidential and proprietary information s/he has gained by working for one company to benefit him/herself and a competitor and to the detriment of his/her former employer. That’s unfair competition.
When the non-compete is overbroad, or when employers enter into similar agreements with each other they are seen as inhibiting fair competition. But wait a minute, you may be thinking, if I have a company and I agree to limit competition with a competitor, isn’t that between us, what’s it for the government to decide whether we are being fair to each other? That’s a fair question. The problem is that the term is subject to a broader application. Fair competition is not only about the parties to the agreement, but all other parties and entities that might be impacted by it. Remember, if you unreasonably limit competition, the consumers of the goods or services in question are the ones who truly lose. In the employment context that includes not only other employers but also the employees.
Let’s look generally at how the no-poaching or even a wage information sharing agreement comes under scrutiny. If you and your competitors have such an agreement, it will often serve to suppress wages. Anti-trust law treats employers as competitors not only in the actual businesses they run, but also as competitors for employees. In other words, they compete to purchase the services of the available workforce at the best price. Wages and benefits are the price for the employees’ services. Competition drives up the price that employers are willing to pay for the services in question. When employers have any type of agreement, express or implied, or even any concerted joint activity that acts to in any way “fix” or artificially deflate wages, they unreasonably restrain this type of competition, they have violated the Sherman Antitrust Act. Therefore even exchanges of wage information between employers may be subject to antitrust scrutiny.
OK, we’ve done enough for now. Let’s not bite off more than we can chew. We’ll look at some case examples next week in order to get a better idea of how these concepts work in real life. See you then!
Disclaimer: Contents of this post are for educational/informational purposes only, are not legal advice, and do not create an attorney-client relationship. Consult with competent employment counsel in the state(s) in which you employ people with your specific questions.
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