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Are ‘No Employee Poaching Agreements’ Anti-Trust Violations?

The Department of Justice is actively exploring, investigating and challenging no-poach and wage-fixing agreements between employers. The Department of Justice asserts that: that when “companies agree not to hire or recruit one another’s employees, they are agreeing not to compete for those employees’ labor. Robbing employees of labor market competition deprives them of job opportunities, information, and the ability to use competing offers to negotiate better terms of employment.”

In the Southern District of Illinois, a putative class action against Jimmy Johns was allowed to proceed under a theory that its franchisees’ franchise agreement restricted franchisees from hiring each other’s workers.  Butler v. Jimmy John’s Franchise, LLC, 331 F. Supp. 3d 786, 797 (S.D. Ill. 2018)(dismissing Illinois Antitrust Act but allowing federal claims to proceed).

Earlier this year the Department of Justice filed Statements of Interest in a number of class action lawsuits filed by employees asserting anti-trust claims.  The plaintiffs in those cases were formerly employed by franchisees of the fast-food franchises–Auntie Anne’s, Arby’s, and Carl’s Jr.   In the Statement of Interest, the Government explains it “has a particular interest in the standard for judging the legality of “no-poach agreements”—that is, agreements among employers not to solicit or hire each other’s employees—under Section 1 of the Sherman Act, 15 U.S.C. § 1.”  The lawsuits in these cases alleged that the franchisor and franchisee defendants in each case entered the agreements “with the common interest and intention to keep their employees’ wage costs down, so that profits continued to rise or at least not be undercut by rising salaries across the industry.”

In the Statement of Interest, the United States explains that:

As with other types of allocation agreements, an employee who is a victim of an allocation agreement among employers cannot reap the benefits of competition among those employers that may result in higher wages or better terms of employment. No-poach agreements among competing employers have almost identical anticompetitive effects to wage-fixing agreements: they enable the employers to avoid competing over wages and other terms of employment offered to the affected employees.

It will be interesting to watch the outcome in these cases.

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