Mark Pestronk
Q: In his April 15 "Reality Check" column, Richard Turen wrote about the difficulty of finding the best employees for his company. Our agency is facing the same problem, especially now that business is booming. Once we find good people, our competitors try to lure them away, even though we offer good pay and benefits. First, would it be legal for us to enter into an agreement with those competitors to refrain from hiring each other's employees? Second, if not, would it be legal for us and our competitors to agree to not pay employees more than X amount of dollars? Finally, could we legally require our employees to agree to not work for our competitors for a certain period after they resign?
A: No-poaching agreements and wage-fixing agreements are illegal under federal law. They are what is called "per se" violations of the antitrust laws, and they subject employers to civil and even criminal prosecution.
The U.S. Department of Justice and the Federal Trade Commission have issued a paper titled "Antitrust Guidance for Human Resources Professionals" that explains the illegality of and potential penalties for entering into agreements with competitors to:
- Fix the salary or other terms of compensation, whether at a specific level or within a range, for employees (wage-fixing agreements), or
- Preclude companies from hiring or soliciting each other's employees without justification (no-poaching agreements).
If you thought that the DOJ and the FTC only went after huge companies that affect the entire labor market, you would be wrong. The government has criminally prosecuted even small businesses and their owners for entering into no-poaching and wage-fixing agreements.
Because of the risk of even being accused of entering into these kinds of agreements, antitrust attorneys advise against discussing the subject of salaries and benefits among competitors, whether at trade association meetings or even informally, either on a bilateral or multilateral basis. That sounds like good advice to me.
Finally, as far as requiring employees to agree not to work for a competitor for a length of time after resigning, you may already know that the FTC has proposed to outlaw all noncompete clauses. See my Feb. 6, 2023, Legal Briefs column, "Noncompete clauses could be going away."
If President Biden wins re-election, the proposed rule will probably become final. In the meantime, several states, including, notably, California, have their own statutes outlawing noncompetes.
In the majority of states, noncompetes are still legal, but they must meet multiple, rather subjective, requirements: They must be reasonable in duration and geographic area, be no greater than is required for the protection of the legitimate interest of the employer, not impose undue hardship on the employee and not be injurious to the public.
If your employee is in another state, the noncompete must pass muster under the laws of the employee's state and probably yours, as well. Since you can't be an expert on every state's law, you should consult an employment attorney before trying to use a noncompete clause.