In most states, non-competition agreements between an employer and employee are legal, as long as there is some form of consideration (like money) to support them.
But, what about a no-hire or no-poach agreement; e.g., a “contract” between two businesses where one (or both) agrees not to hire the others’ employees during their business relationship and for some time after it ends?
That must be legal too, right?
Probably not.
In January, the Pennsylvania Superior Court ruled (here) that a no-hire provision “exceeds the necessary protection [that a company] needs to secure its business, and is void as a matter of public policy.” The rationale was that the agreement unfairly prevented individuals from seeking employment without providing any consideration — let alone knowledge or input of the restrictive provision.
Shockingly, this was the first time that an appellate court in the Commonwealth had ruled on this issue.
Courts in other states are split on this issue. Even federal and state courts may not see eye to eye. In Pennsylvania, for example, there is at least one federal court that has upheld a no-hire provision.
But, the Department of Justice disagrees with the Pennsylvania federal court.
Indeed, a few years ago, the DOJ announced (here) that it would proceed criminally against companies that agree into these no-poach arrangements. According to the DOJ, “[M]arket participants are on notice: the Division intends to zealously enforce the antitrust laws in labor markets and aggressively pursue information on additional violations to identify and end anticompetitive no-poach agreements that harm employees and the economy.”
GULP!
So, if your business has no-hire agreements with other companies, consider forwarding this post to your lawyer and asking whether that agreement is something you want to maintain going forward.
This article originally appeared on The Employer Handbook blog.