A no-poaching agreement is an agreement between two or more companies not to hire or solicit each other’s employees. It could be a contract between two companies in the same industry. It could be a contract between a company and a vendor.
It’s easy to see why employers might be tempted to use non-poaching agreements, particularly in a tight labor market with low unemployment. But the reality is that non-poaching agreements suppress competition for labor and limit employee mobility. This will result in lower wages and benefits for workers. This is particularly abusive to the worker who loses out on a job because the new employer is bound by an agreement the worker never signed (and may not even know about).
But there is good news for Texas employees. In Texas, there are three laws that prohibit no-poaching agreements: the Sherman Anti-Trust Act, the National Labor Relations Act, and the Texas Free Enterprise and Antitrust Act.
The Sherman Anti-Trust Act
Under the Sherman Anti-Trust Act, no-poaching agreements can be considered illegal if they are found to be anti-competitive. The Sherman Act was passed in 1890 and is one of the most important pieces of anti-trust legislation in the United States. The act prohibits certain business activities that are deemed to be anti-competitive, such as price-fixing, market allocation, and monopolization. No-poaching agreements can fall under the umbrella of market allocation, as they involve companies agreeing not to compete for certain types of labor.
In recent years, there has been increased scrutiny of no-poaching agreements. Following abuse of no-poaching agreements in the tech sector, the Department of Justice and the Federal Trade Commission issued joint guidance in 2016 [https://www.ftc.gov/news-events/news/press-releases/2016/10/ftc-doj-release-guidance-human-resource-professionals-how-antitrust-law-applies-employee-hiring] saying that no-poaching agreements between companies are generally illegal under anti-trust laws.
It is important for companies to be aware of the potential anti-trust implications. Companies that are found to have engaged in anti-competitive behavior can face significant fines and other penalties. Additionally, employees who have been affected by no-poaching agreements may bring their own legal action against the companies involved.
The National Labor Relations Act
The National Labor Relations Act is a federal law mostly known for its protection of unions. But the NLRA is broader than organized unions, it protects all sorts of concerted employee activity, even between non-union employees.
Section 7 of the NLRA protects employees’ right to engage in concerted activities for their mutual aid or protection, such as discussing wages, benefits, and working conditions with their coworkers. No-poaching agreements that restrict the ability of employees to move between employers or discuss job opportunities with their peers may be viewed as a violation of this right. [https://www.jdsupra.com/legalnews/the-nlrb-and-ftc-agree-to-collaborate-8216645/] In the 2016 guidance issued by the DOJ and the FTC, they specifically noted that non-poaching agreements may violate the NLRA because of their impact on concerted activity.
In 2018, a group of fast food workers filed a lawsuit against several major restaurant chains, alleging that the companies’ no-poaching clauses in franchise agreements violated the NLRA. In 2019, a similar lawsuit concerning the rail industry resulted in the companies ending their no-poaching agreements and notifying employees that the agreements were no longer valid.
One caveat concerning the NLRB is that it generally does not apply to workers in management.
Texas Free Enterprise and Antitrust Act
In a free market economy, restraints of trade have historically been prohibited. In other words, anyone can freely work for anyone. Similarly, anyone can freely hire anyone. Texas embodies this capitalist spirit in the Texas Free Enterprise and Antitrust Act. [https://statutes.capitol.texas.gov/Docs/BC/htm/BC.15.htm ] Section 15.05(a) states, “Every contract, combination, or conspiracy in restraint of trade or commerce is unlawful.”
The only exception to this limit on restraints of trade is narrow language permitting certain non-compete agreements between employees and businesses. But there is no such exemption for business-to-business agreements to not hire employees. Therefore a no-poaching agreement between two businesses would also be illegal under Texas state law.
While no-poaching agreements may seem like a hard boiled tactic to cage in employees seeking to spread their wings, these agreements are runny at best. An employee faced with a no-poaching agreement should not crack under pressure. And an employer who insists on no-poaching agreements may end up shelling out damages to the impacted workers. If you’re looking for an excellent (eggsellent?) employment attorney I’d invite you to book an initial consultation. [https://www.robwiley.com/online-booking.html]