Hospitality Industry Should Be Aware of No-Poach Agreements
By Steven D. Weber Managing Partner, Stark Weber PLLC | December 23, 2018
A no-poach agreement is an agreement between two or more employers that may, among other things, restrict a party to the agreement from hiring the employees of the other party. Such an agreement might limit the movement of employees between competitors and help to retain their employees – even if their employees wish to move elsewhere. Hospitality players may find such an agreement to be attractive in a crowded hospitality market where hospitality players are competing to hire the same employees.
While such an agreement sounds beneficial to the hospitality players, it may run afoul of antitrust laws and expose a hospitality player to liability. Recent action by the Department of Justice ("DOJ") evidences the risk to hospitality players associated with such agreements. Hospitality players should be aware of this risk when considering whether to enter into no-poach agreements.
On April 3, 2018, the DOJ announced a settlement between Knorr-Bremse AG ("Knorr") and Westinghouse Air Brake Technologies Corporation ("Westinghouse"). Approximately three months later, on July 11, 2018, the United States District Court for the District of Columbia entered a final judgment in the associated lawsuit United States v. Knorr-Bremse AG, et al. (the "Final Judgment"). By the lawsuit, the United States alleged that the two defendants were the world's largest rail equipment suppliers and each other's top rival for the certain passenger rail applications. They allegedly competed with another and with other firms to attract, hire, and retain skilled employees.
The United States alleged a violation of antitrust laws because, among other things, Knorr and Westinghouse allegedly entered into an unlawful agreement not to poach each other's employees. The United States alleged that they entered into a series of agreements not to solicit, recruit, hire without prior approval, or otherwise compete for employees. The DOJ cited to one example in its press release announcing the lawsuit settlement: "For example, in a letter dated January 28, 2009, a director of Knorr Brake Company wrote to a senior executive at [Westinghouse's] headquarters, "[Y]ou and I both agreed that our practice of not targeting each other's personnel is a prudent cause for both companies. As you so accurately put it, 'we compete in the market.'"
As part of the settlement with the United States, Knorr and Westinghouse agreed to be bound by the Final Judgment. The Final Judgment defined a "No-Poach Agreement" or "No-Poach Provision" as "any Agreement, or part of an Agreement, among two or more employers that restrains any person from cold calling, soliciting, recruiting, hiring, or otherwise competing for (i) employees located in the United States being hired to work in the United States or outside the United States or (ii) any employee located outside the United States being hired to work in the United State." As part of the of the Final Judgment, each of the defendants "is enjoined from attempting to enter into, entering into, maintain, or enforcing any No-Poach Agreement or No-Poach Provision."
The Final Judgment does not prevent the defendants from "attempting to enter into, entering into, maintaining, or enforcing a reasonable Agreement not to solicit, recruit, or hire employees that is ancillary to a legitimate business collaboration." For hospitality players, the Final Judgment should serve as a warning that the DOJ intends to prosecute improper no-poach agreements. Hospitality players should heed this warning and take steps to mitigate the risk of running afoul of the law.