Q: Can a friendly competitor and I legally agree not to solicit or hire each other's employees? Over time, such an agreement would hold down salaries, especially in our community, where there are only a few agencies. In order to prevent fee-bidding battles, can we agree not to try to poach each other's corporate clients?
A: Agreements between competitors that lessen competition for employees or customers are generally illegal under federal antitrust laws. In the worst case, your agency could be heavily fined, and you could go to prison.
Under Section 1 of the Sherman Act of 1890, which is the basic antitrust law, all agreements "in restraint of trade" are against the law. Over the decades, the Supreme Court has defined the specific kinds of agreements that violate the Sherman Act, and those include any agreement between competitors that lessens any sort of competition and has no redeeming value.
Two years ago, the U.S. Department of Justice (DOJ) sued six technology giants: Adobe, Apple, Google, Intel, Intuit and Pixar. The government alleged that each of the six had at least one agreement with another one of the six not to call on or solicit the other's employees.
The DOJ stated that the agreements "diminished competition to the detriment of affected employees who were likely deprived of competitively important information and access to better job opportunities." In other words, the companies lessened competition and thereby kept a lid on the salaries that they had to pay computer experts.
Although the six companies denied liability, they all settled with the government by agreeing not to have such agreements in the future. They specifically agreed to refrain from "entering, maintaining or enforcing any agreement that in any way prevents any person from soliciting, cold calling, recruiting or otherwise competing for employees."
Following the DOJ suit, a group of ex-employees filed a suit for damages, and in January a federal judge stated that the plaintiffs have a valid antitrust claim. The plaintiffs' attorneys state that damages could be in the hundreds of millions of dollars.
The same legal standard would apply to agreements between competitors not to try to poach each other's corporate accounts or leisure clients. The agreement would lessen competition and tend to hold down your transaction or service fees.
It makes no difference whether your agencies are relatively tiny compared to the tech giants or whether the agreement affects only an insignificant part of the U.S. market. The law is the same regardless of the competitors' size, although it is less likely that either the government would prosecute or that affected employees or accounts would sue, given the amount of money at stake.
An exception to the rule outlawing agreements among competitors is the joint venture: when two or more companies come together on a common business purpose such as a space- or commission-sharing arrangement or joint bid on a corporate account. Such agreements are allowed when the arrangement strengthens competition and they have "redeeming value" under the law.
For example, if your agency hosts independent contractors, you and a contractor can probably agree not to solicit each other's employees or accounts or not to use confidential information belonging to the other party.
Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email him at mark@pestronk.com.