Most employers recognize that their organizations' success depends on the skills and efforts of their employees. Accordingly, many employers are concerned about losing key employees, particularly those with highly technical skills. To try to avoid this loss, some employers enter into "no-solicitation" or "no-hiring" agreements with other employers (also known as "no-switching" or "no-cold-calling" agreements.) These no-solicitation/no-hiring agreements essentially prevent each employer from soliciting and hiring the other employer's employees for some period of time, or even indefinitely.
Recent Challenges to No-Solicitation/No-Hiring Agreements
The legality of no-solicitation/no-hiring agreements has been questioned over the years, including most recently in United States of America v. Adobe Systems, Inc., et al., No. 1:2010cv01629 (District of Columbia). In September 2010, the U.S. Department of Justice ("DOJ") filed a lawsuit against Adobe Systems, Inc., Apple Inc., Google Inc., Intel Corporation, Intuit, Inc. and Pixar, alleging that the companies entered into bilateral agreements pursuant to which the companies agreed not to "cold-call" each other's employees for employment opportunities.
The DOJ claimed that the agreements - by reducing competition for highly skilled technical employees, diminishing potential employment opportunities for those employees and interfering with proper functioning of the price-setting mechanism - were "naked restraints of trade" that violated Section 1 of the Sherman Act, 15 U.S.C. § 1, and were per se unlawful. Rather than litigate the claims, however, the parties agreed to settle the case. The proposed Final Judgment or settlement, which was filed with the court at the same time as the complaint, provides guidance to employers regarding when and under what circumstance the government will treat such agreements as lawful or unlawful.
Conduct Prohibited by the DOJ
The prohibited conduct under the Adobe Systems proposed settlement is, "attempting to enter into, entering into, maintaining or enforcing any agreement with any other person to in any way refrain from, requesting that any person in any way refrain from, or pressuring any person in any way to refrain from soliciting, cold calling, recruiting, or otherwise competing for employees of the other person." See Proposed Final Judgment Section IV.
Conduct Accepted by the DOJ
Importantly, however, the proposed settlement also sets forth the circumstances under which the defendants may lawfully enter into no-solicitation/no-hiring arrangements. The proposed settlement does not prohibit provisions that are:
- Contained within existing and future employment or severance agreements with the defendant's employees;
- Reasonably necessary for mergers or acquisitions, consummated or unconsummated, investments, or divestitures, including due diligence related thereto;
- Reasonably necessary for contracts with consultants or recipients of consulting services, auditors, outsourcing vendors, recruiting agencies or providers of temporary employees or contract workers;
- Reasonably necessary for the settlement or compromise of legal disputes; or
- Reasonably necessary for (a) contracts with resellers or OEMs; (b) contracts with providers or recipients of services other than those enumerated in paragraphs 1 - 4 above; or (c) the function of a legitimate collaboration agreement, such as joint development, technology integration, joint ventures, joint projects (including teaming agreements), and the shared use of facilities.
See Proposed Final Judgment Section V.
In light of Adobe Systems and the DOJ's apparent active enforcement agenda, employers should recognize the potential antitrust implications of entering into any agreement with another employer, which prohibits or restricts the employers from recruiting or hiring one another's employees.
Moreover, employers should review their recruiting policies and procedures to ensure such policies and procedures do not have the effect of reducing competition between employers for employees, or diminishing employment opportunities for employees who are not parties to or aware of any agreement to that effect.
Furthermore, in states were non-competition agreements are permitted by law, employers should consider using such agreements in lieu of no-solicitation/no-hiring agreements with other employers. Non-compete agreements often are able to achieve similar results as no-solicitation/no-hiring agreements, without the added risks. Additionally, unlike no-solicitation/no-hiring agreements, a whole body of case law exists defining what is and is not a reasonably drafted non-compete agreement in terms of time, geographic scope and activities proscribed.