The Antitrust Division, US Department of Justice has put industry on notice since 2016 that naked “no poach” agreements–agreements not to compete for each other’s employees– could be treated as criminal antitrust violations. In other words “no-poach” employee agreements between competitors will be treated the same as “no-poach” customer agreements between competitors. The Antitrust Division’s press release stated: “Under the antitrust laws, no-poach agreements that are naked (i.e., not reasonably necessary for a separate, legitimate business transaction or collaboration) eliminate competition in the same irredeemable way as agreements to fix product prices or allocate customers, which have traditionally been criminally investigated and prosecuted as hardcore cartel conduct.”
In this particular case, the Division reached a civil settlement with rail equipment suppliers Knorr-Bremse and Wabtec over allegations of a long-standing agreement to not compete for each other’s employees. In October 2016 the Antitrust Division and Federal Trade Commission published Antitrust Guidance for Human Resource Professionals and announced that employee “no-poach” agreements that are not tied to some legitimate transaction or collaboration can be prosecuted criminally, like any other traditional naked agreement not to compete. But, in this case the government brought a civil action, stating, “In an exercise of prosecutorial discretion, the department will pursue as civil violations no-poach agreements that were formed and terminated before those announcements were made.” The Antitrust Division warned, however, that it still has open civil and criminal investigations into other no-poach agreements in the rail equipment industry as well as in other sectors. In early 2018 the Division warned that criminal “no-poach” cases were in the pipeline (here).
Some highlights from the Antitrust Division’s press release:
The department’s complaint alleges that:
- Beginning no later than 2009, Knorr and Wabtec reached agreements not to solicit, recruit, hire without prior approval, or otherwise compete with one another for employees. For example, in a letter dated January 28, 2009, a director of Knorr Brake Company wrote to a senior executive at Wabtec’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.’”
- Beginning no later than 2011, Knorr Brake Company (a wholly-owned subsidiary of Knorr) and Faiveley Transport North America (the U.S. subsidiary of Faiveley before Faiveley was acquired by Wabtec) agreed to get the other’s permission before pursuing each other’s employees. For example, in October 2011, a senior executive at Knorr Brake Company explained that he had a discussion with an executive at Faiveley’s U.S. subsidiary that “resulted in an agreement between us that we do not poach each other’s employees. We agreed to talk if there was one trying to get a job[.]”
- Beginning no later than 2014, Wabtec Passenger Transit, a U.S. business unit of Wabtec, and Faiveley Transport North America similarly agreed not to hire each other’s employees without prior approval. For example, in an e-mail to his colleagues, a Wabtec Passenger Transit executive explained that a candidate for employment “is a good guy, but I don’t want to violate my own agreement with [Faiveley Transport North America].”
Reuters reported that Wabtec said in a statement that it had settled even though it committed no wrongdoing.
“We firmly believe that our recruiting policies have been consistent with the antitrust laws and have in no way diminished competition for talent in the marketplace,” the company said. “We have elected to settle this matter to avoid the cost and distraction of litigation.”
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