No-poach agreements (NPAs) are an emerging trend in global antitrust policy. It’s an agreement between employers to restrict hiring each other’s employees. In 2015 in the US, top tech companies Apple, Google, Intel Corp, and Adobe Systems Inc settled for $415 million payout to resolve an antitrust class action accusing them of conspiring to avoid cold calling each other’s...
No-poach agreements (NPAs) are an emerging trend in global antitrust policy. It’s an agreement between employers to restrict hiring each other’s employees.
In 2015 in the US, top tech companies Apple, Google, Intel Corp, and Adobe Systems Inc settled for $415 million payout to resolve an antitrust class action accusing them of conspiring to avoid cold calling each other’s employees. In 2019 and 2021, Duke University agreed to pay $73.5 million to settle claims that the institution had an illegal agreement with the University of North Caroline not to poach each other’s faculty members. Recently, Mexico and Portugal fined football clubs and federations for putting salary caps and preventing players from contracting with other teams. These are just a few examples.
As of late, several foreign countries are strengthening their antitrust efforts in the labour market, including Brazil, Canada, France, Germany, Hong Kong, Japan, Mexico, the Netherlands, Spain, the UK, and the US. These jurisdictions have seen ongoing investigation or enforcement activities across industries such as technology, healthcare, banking, education, sports, fast-food franchise, automotive engineering, and the oil industry.
And in today’s time of talent scarcity and rising wage costs, the debate over employee mobility is of great relevance.
Companies resort to various means to retain talent, especially in innovative and skilled labour markets. It’s important to recoup their investment in human capital and protect their trade secrets. When financial incentives, deterrence from leaving, etc. do not work, companies may combat talent migration by resorting to NPAs. While the Competition Commission of India (CCI), the Indian competition regulator, has not issued a ruling or policy statement on NPAs, it can certainly fall foul of Indian antitrust laws.
So what role does antitrust play in the labour market?
NPAs are illegal deals entered with rivals not to solicit, hire or steal one another’s employees. NPAs could be between employers as well as between employers and employees. In the latter case, employees are prevented from joining or starting a competing firm or from soliciting the employer’s staff, customers, or clients after leaving that employer. The CCI has assessed non-competes under merger provisions but not under cartel provisions.
NPA is a broad bucket that includes no-hiring, wage-fixing, limiting benefits, exchanging confidential information of employees (e.g., salary) – any conspiracy to restrict competition in the labour market. Employees could include salaried employees, contracted employees, and freelancers. Interestingly, companies qualify as competitors if they compete for the same pool of employees, irrespective of their actual businesses.
Worth noting is that a pact among cartelists to poach a non-cartelist’s employee would also be illegal. Such pacts could leak confidential information and harm non-cartelist’s business viability. In addition, if the employer is a dominant entity with a superior bargaining position against employees, it can face scrutiny for abuse of dominance too.
NPAs can reduce fair competition in labour market in several ways, just like classic price-fixing collusion. First, they reduce the incentives for an employer to offer higher salaries and better terms, resulting in unfair and lower compensation for employees. Second, they restrict workers’ job opportunities. Third, a depressed labour market with a less competitive workforce can reduce production and output in the market. Conversely, in a dynamic labour market, employers actively solicit new workers or pre-empt existing workers from leaving by offering competitive salaries that enhance their mobility and production in the market.
In India, collusions are per se violations, i.e., they are presumed to cause harm once it is proved they exist and no assessment of effects is required. There is no rule of absolute illegality however, and the defendant can rebut it by leading contrary evidence.
NPAs might also involve a vertical element (e.g. suppliers and distributors, franchisors and franchisees) instead of being purely horizontal (e.g. suppliers only, franchisors only). Would that mean such NPAs be probed under anticompetitive vertical agreements, which are less damning than horizontal agreements? It depends. Such agreements may have both horizontal and vertical elements. However, for pure vertical agreements, the illegality is not presumed, and the regulator must show harm.
The penalties for violating Indian antitrust laws are severe, which could be imposed on global turnover. Companies can also face follow-on damages claims from persons harmed by NPAs.
This is however not to say all NPAs are unlawful. Potential examples could be where NPAs are reasonably necessary for a legitimate collaboration between employers, such as joint ventures and joint R&D agreements, or to protect IPRs, or when in contracts with consultants, vendors, outsourced providers, etc.
Especially in mergers and divestment scenarios, buyers expect NPAs necessary for transaction’s success. It allows them to retain key employees of assets bought to protect their value and unlock full competitive potential. Enforceability of NPAs however depends on their scope and purpose, which should be objectively justifiable – a task better taken on a case-by-case basis.
Regardless of the limited guidance available in India, the environment is rife with chances of antitrust action. Given the serious risks, companies and HR managers should ensure that their hiring practices comply with antitrust laws.
The author is a competition law / antitrust lawyer. Views are personal.