ANALYSIS: ‘No-Poach’ Cases Still Grappling With Big Questions

Antitrust lawsuits challenging “no-poach” or “no-hire” agreements among employers are gathering steam. These agreements, in which businesses that otherwise would compete for the same pool of skilled labor agree not to do so to keep wages down in their shared labor market, can violate the antitrust laws.

But since federal enforcers brought the first federal civil no-poach cases in 2010, involving highly skilled workers of some of the country’s biggest technology companies, we’ve learned surprisingly little about the outlines of these labor market claims from private civil lawsuits. And although the use of these agreements can be treated as a criminal antitrust offense under some circumstances, the Justice Department has brought only a few criminal cases. (None have gone to trial.)

Most of the civil cases addressing “no-poach” agreements are dismissed, settled after surviving a motion to dismiss, or dismantled when the court declines to certify a class of plaintiffs to pursue the case. That’s not uncommon among antitrust cases—few go to trial—but given that 96 antitrust cases have been brought against various employers since 2012, we might have hoped for more law on the topic.

To date, two main questions have stood out among the civil cases: What does it take to certify a class of employees to successfully challenge a no-poach agreement? And what standard applies to review the alleged anticompetitive impacts of such an agreement?

What’s the Standard?

Plaintiffs continue to allege that most no-poach agreements should be per se offenses that get quick analysis. After all, they allege, these agreements amount to firms dividing the market for employees and agreeing not to invade each other’s turf. That keeps wages lower than they might be if firms competed for each other’s talent pool, both because firms don’t bid up each others employees and because it limits the information workers have about what their job might be worth elsewhere. Particularly since the DOJ warned that “naked” no-poach agreements among competitors are a criminal offense, plaintiffs maintain that many such agreements should get per se treatment like any other market allocation scheme.

Courts are not convinced. Most apply a “rule of reason” standard to many cases, including those against franchises that demanded “no-poach” agreements in their franchise agreements that kept employees from moving from one retail outlet to another in a franchised chain. During the Trump administration, the Justice Department weighed in on the issue, arguing that no-poach clauses in franchise agreements almost always deserve full “rule of reason” analysis because they are essentially “vertical"—meaning between the franchisor and the franchisee—and are ancillary to a generally pro-competitive franchise agreement. In the same case, however, Washington’s attorney general argued that these agreements are illegal and should be adjudged under the strictest standard.

Courts have also conceded that a “no-poach” agreement between franchisor and franchisee has no other real purpose than to keep competing franchises from hiring each other’s workers, and can sometimes even be enforced horizontally between competing retailers. In a case brought against Jimmy John’s sandwich franchises, for example, the court acknowledged that the conduct at issue is similar to per se illegal agreements and might be best judged under the “quick look” analysis reserved for conduct that is obviously problematic.

It’s not clear at this juncture what features move a no-poach agreement from the lenient “rule of reason” standard into a “per se” review. Some horizontal features to the deal don’t seem to be enough, and it isn’t well established what “procompetitive benefits” employers might allege that could counterbalance any harm plaintiffs show from the agreement. While courts have no trouble finding that some purely horizontal agreements not to hire each other’s highly-skilled workers are per se illegal, many cases are getting more complex treatment.

No Class?

Antitrust cases overwhelmingly use statistical and economic methods to prove that plaintiffs were injured by allegedly anticompetitive conduct and to quantify that injury. That includes class actions: Most class actions seek to prove injury and roughly measure it on a classwide basis using economic models.

But courts are increasingly skeptical of whether these proposed models sweep too broadly, capturing uninjured plaintiffs, or whether using statistical averages is appropriate when class members may have suffered varying damages. It’s become difficult to certify a broad class of consumers (or employees) in antitrust cases, and courts examine more and more of the merits of the plaintiffs’ case at this stage of litigation.

In two antitrust no-poach cases against franchises of fast-food giants McDonald’s and Jimmy John’s, both courts declined to certify a nationwide class of employees who can bring no-poach claims. While the circumstances in each case were different, each court rejected the plaintiffs’ attempts to prove antitrust injuries on a classwide basis.

They also point to fundamental problems with demonstrating a large class in employee cases. Most labor markets are local. While some skill sets are so specialized that workers are recruited nationwide, or workers search nationwide for a new job and move readily to specialized job openings, most people look for a new job in a limited circle proscribed by a manageable commute. Geographic markets therefore pose a hazard for a nationwide class certification in these cases.

Where to Next?

There’s always an outlier. On Sept. 22, the U.S. Court of Appeals for the Eleventh Circuit will hear argument about whether franchisor Burger King Corp. can legally conspire with its franchisees to allocate labor markets through a “no-poach” clause in the franchise agreement. The DOJ has filed an amicus brief arguing that the district court incorrectly concluded that Burger King can’t conspire with franchisees, and is slated to argue that position in court.

A motion to dismiss charges is also pending in one criminal case, involving senior health care workers; meanwhile, defendants in another have pleaded not guilty. Given the relatively swift track of criminal cases compared to civil litigation, those cases may be the ones providing valuable information about the outlines of a per se illegal no-poach agreement in the coming months.

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