No-Poaching and Non-Solicitation Agreements Continue to Vex: Employers May Need to Update Employment Contracts

Employers entering into no-poaching agreements with their competitors continue to risk civil and criminal antitrust liability. In addition, employers who have contractual no-hire or non-solicitation agreements with their employees risk those provisions being held unenforceable. It is critical for employers—particularly those with an Indiana presence—to review those agreements and update them if necessary.

I previously wrote about the antirust issue, and it continues to be important for HR professionals to understand the obligations employers have under federal antitrust laws so they can avoid these types of agreements.

You will recall the settlements reached by Google, Apple, Intel and Adobe Systems just a few years ago, which totaled $415 million in penalties relating to charges that they entered into no-poaching agreements. Disney, Dreamworks Animation and Sony also reportedly resolved similar lawsuits involving the hiring of animation employees. Jimmy John’s is defending itself against charges brought in federal court in Illinois in connection with a claim by employees that the company violated federal antitrust laws by prohibiting them from moving from one franchisee’s store to a store owned by a different franchisee.

The same issue is now being litigated in a class action filed in February in federal court in New York involving some of the world’s largest luxury goods retailers including, Gucci, Louis Vuitton, Saks and Prada. The allegation in that lawsuit is that the defendants entered into no-poaching agreements with one another that prohibited employees from moving from one company to another.

One of the plaintiffs, Angelene Hayes, worked at a Saks store in Ohio. She previously worked for Louis Vuitton and wanted to return there because it would give her an opportunity to earn more money. She claims a Louis Vuitton representative rejected her interest in returning, telling her, “Unfortunately, we have an agreement with Saks that we cannot take their employees and have to wait 6 months before hiring. We have strict guidelines to follow.” 

Another plaintiff, Ying-Liang Wang, claims she wanted to move from Saks to Gucci.  She alleges a Gucci store manager told her she would be a “perfect fit,” but she could not “technically recruit” Wang. Wang then contacted Prada to seek an opportunity there. She claims a Prada general manager told her Prada “has an agreement with Saks” not to recruit luxury retail employees from Saks.

We anticipate that Prada and Gucci will deny the allegations made by the plaintiffs. Whether the allegations made by the plaintiffs are true or not will be determined later in the litigation. However, all employers must remain cognizant that, aside from the potential civil liability that may arise, the federal antitrust laws also permit penalties that include imprisonment and million dollar fines. 

A more common approach that companies take to try to prevent a competitor from poaching or “raiding” its employees is to enter into agreements with current employees that prohibit them from trying to solicit their former coworkers. These “no-hire” or “no-solicitation” agreements are lawful in many states. In fact, it has been suggested in the media that these agreements are becoming more popular in places like Silicon Valley because California law, for the most part, prohibits the enforcement of non-compete agreements.

For example, former Google employee Anthony Levandowski had a very bad week just recently. Google sought to enforce a contractual no-hire provision. Google claimed Levandowski left its self-driving business unit, Waymo, and tried to solicit Google employees for his own start-up self-driving truck company. An arbitrator found in favor of Google, who then sought court approval of the arbitrator’s award. On March 4, 2020, the court entered judgment for Google and against Levandowski for $179 million dollars! As you might have anticipated, he filed for bankruptcy. But, complicating the matter even further for Levandowski is that he was also reportedly indicted on more than 30 counts of theft and attempted theft of Google’s trade secrets.
 
While Google was successful in its action against Levandowski, non-solicitation and no-hire agreements are not cure-alls. In fact, employers who have non-solicitation agreements with Indiana employees may find these contractual provisions are legally unenforceable. In December 2019, the Indiana Supreme Court, in Heraeus Medical, LLC v. Zimmer, reviewed a company’s no-solicitation agreement and held that it was not enforceable because it prohibited a former employee from soliciting all of the company’s employees rather than those in which the company had a “legitimate protectable interest.” The Heraeus decision may be distinguishable for a number of reasons from a future set of facts, but what is abundantly clear is that employers with Indiana employees must review these agreements and revise them if necessary. We are working with many clients to do just that, and we encourage you to seek legal counsel so you can receive guidance regarding your company’s options.

If you have questions, please contact Michael Blickman in our Labor, Employment and Immigration Group, michael.blickman@icemiller.com, (317) 236-2298 or Tony Aaron in our Antitrust Group, anthony.aaron@icemiller.com, (317) 236-2484.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.