Massachusetts Governor Signs Non-Compete Bill Into Law

Just before midnight on July 31, 2018, the last day of its legislative session, the Massachusetts Legislature passed a significant bill regulating the use of non-compete agreements in the Commonwealth.  Today, August 10, 2018, Governor Charlie Baker signed that bill into law.

In an article dated August 1, 2018, we examined the key aspects of the new law.  We identified certain issues with the law that might lead to inconsistent enforcement by the courts (e.g., ambiguous consideration requirements, a conflicting and potentially unenforceable venue provision, etc.).  Although Governor Baker could have rejected the bill or demanded further changes, it is no surprise that he signed it as written, given the amount of time, effort, and compromise that it took to get to this point.  Moving forward, we hope that the Legislature will pay close attention to the courts as they interpret the law, and push for amendments where they are needed.

Companies and other readers are encouraged to return to this Blog for periodic updates and analysis regarding the Massachusetts non-compete law, as well as to contact a Jackson Lewis attorney for related legal assistance in drafting, enforcing and interpreting non-competition agreements under Massachusetts law.

Massachusetts Non-Compete Law Reaches Governor’s Desk

Just before midnight on July 31, 2018, the Massachusetts Legislature passed a bill regulating the use of non-compete agreements in the Commonwealth. This development is a long time coming, as the Legislature had been attempting for nearly a decade to create a non-compete law.

In an article posted on our website on August 1, 2018, Erik Winton (Boston) and Colin Thakkar (Jacksonville) examine the details of the non-compete act, which is set to take effect on October 1, 2018. For guidance on how to comply with the new law, affected employers are encouraged to contact a non-compete attorney in Jackson Lewis’s Boston Office, including Erik Winton, Stephen Paterniti, and Sarah Herlihy.

Antitrust Director Signals Heightened Focus On Deterring No-Poach Agreements In Healthcare Industry

As we have reported in previous articles, the Department of Justice’s Antitrust Division has repeatedly reaffirmed its intent to criminally prosecute companies that restrict labor market competition through the use of unlawful no-poach and wage-fixing agreements. On May 17, 2018, a high-ranking Division official offered further guidance by announcing that the Division is taking a heightened look at unlawful no-poach agreements and other antitrust violations in the healthcare industry.

Antitrust Enforcement Policy In The Trump Era

On October 20, 2016, the DOJ and Federal Trade Commission released Antitrust Guidance for Human Resource Professionals, stating that agreements between companies to either prevent hiring from their respective workforces, or set artificial limitations on employee wages, would be subject to criminal prosecution if such agreements are not reasonably tied to a larger, legitimate collaboration between the companies (see our related article, dated November 9, 2016).  Approximately fifteen months later, on January 19, 2018, Assistant Attorney General Makan Delrahim confirmed that such Guidance remained in effect under the Trump Administration, and signaled that multiple enforcement actions were in the works (see our related article, dated January 25, 2018).

The Division partially delivered on that promise when, on April 3, 2018, it filed a consent agreement with two rail equipment supplier for maintaining purported naked no-poach agreements over a period of several years (see our related article, dated April 25, 2018).  Although the nature of that enforcement action was civil rather than criminal, the Division explained that it exercised such lenience only because the defendants discontinued the unlawful arrangements before the Division published its Antitrust Guidance.  Further, in a Division update dated April 11, 2018, which included a summary of the case, the Division offered the following warning:

Market 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.

Antitrust Official Offers An Update On Anticipated Enforcement Measures

On May 17, 2018, in remarks delivered at the American Bar Association’s Antitrust in Healthcare Conference, the Deputy Assistant Attorney General for the DOJ, Barry Nigro, reiterated the Division’s intent to initiate criminal enforcement actions in the near future, including in connection with unlawful no-poach agreements. Mr. Nigro further announced that during the week of May 7, 2018, the Division welcomed a new Acting Deputy Assistant Attorney General for criminal enforcement.  It is unclear from Mr. Nigro’s remarks whether there is any relationship between this change in leadership and the lack of any criminal actions to date.

In addition to signaling its general intent to initiate criminal enforcement actions, Mr. Nigro stated that the Division was placing priority status on violations in the healthcare industry. As Mr. Nigro explained, “few, if any, segments of our economy merit higher priority when it comes to antitrust enforcement, and healthcare has long been an enforcement priority for the Antitrust Division and our friends at the Federal Trade Commission.”

The bulk of Mr. Nigro’s speech was focused on consumer-related antitrust violations, like price fixing, bid rigging, and customer allocation agreements, as well as mergers that likely would lead to increased costs and reduced quality of medical care. In fact, he made just one passing reference to violations affecting the labor market, stating that the Division is “investigating other potential criminal antitrust violations in this industry, including … no-poach agreements restricting competition for employees.”  Therefore, one can only speculate as to when the Division will initiate criminal enforcement actions in connection with a no-poach and/or wage-fixing agreement, as well as which industry will be targeted first.

We are following this topic closely and will update readers on any significant developments. Until then, companies are encouraged to contact a Jackson Lewis attorney for strategies on how to maintain a stable workforce and determine employee wages without running afoul of the antitrust laws.

Department Of Justice Fires Warning Shot Over Unlawful No-Poach Agreements

On April 3, 2018, the Department of Justice’s Antitrust Division settled an antitrust action against the world’s two largest rail equipment suppliers, accusing them of maintaining “naked” no-poaching agreements in violation of the Sherman Act (see Complaint and Consent Decree). Although the civil enforcement action falls short of the agency’s recently-stated inclination to criminally prosecute such agreements, a closer review of the circumstances offers some insight to the agency’s strategies with respect to both the litigation and settlement of such cases.

The Antitrust Division’s Position Toward Horizontal No-Poach Agreements

There is no federal law that prohibits a company from entering into a contract with one of its employees to restrict the post-separation recruitment of co-workers to a competing company. However, no-poach agreements between companies (horizontal agreements), that are not reasonably tailored to support a broader, legitimate business collaboration, are generally viewed as antitrust violations under the Sherman Act.

On October 20, 2016, the DOJ and Federal Trade Commission released Antitrust Guidance for Human Resource Professionals, alerting companies that “naked” no-poach agreements – agreements that are not part of a broader, legitimate business collaboration – constitute per se antitrust violations and would likely be prosecuted criminally, rather than civilly (see our related article, dated November 9, 2016).  More recently, on January 19, 2018, the head of the Antitrust Division, Makan Delrahim, announced that the agency would continue to follow its 2016 Guidance notwithstanding the change in administrations (see our related article, dated January 25, 2018).  Further, Mr. Delrahim disclosed that the agency was already preparing criminal cases against multiple businesses and expected to commence litigation imminently.

Enforcement Action Against Knorr and Westinghouse

The recent enforcement action arose out of a series of alleged no-poach agreements between: (1) Knorr-Bremse AG (“Knorr”) and Westinghouse Air Brake Technologies Corporation (“Wabtec”); (2) Knorr and Faiveley Transport S.A. (“Faiveley”); and (3) Wabtec and Faiveley. Specifically, Knorr, Wabtec and Faiveley allegedly agreed to not solicit, recruit, or hire each other’s employees without the existing employer’s express permission.  According to the Complaint, executive leadership of the defendants actively and strictly enforced the agreements.

The alleged pacts continued until approximately July 2015, when Wabtec announced its upcoming acquisition of Faiveley, whereupon Knorr allegedly called on its workforce to raid Faiveley of its most skilled employees.  Ironically, the agency did not discover the agreements until shortly thereafter, when it was reviewing the Wabtec/Faiveley merger.

The agency filed suit against Knorr and Wabtec for violation of Section 1 of the Sherman Act, 15 U.S.C. §1, alleging “a series of unlawful agreements … to restrain competition in the labor markets in which they compete for employees.” However, it did not proceed criminally, due to the fact that the defendants had discontinued the agreements prior to the 2016 Guidance.  In announcing the enforcement action, the agency confirmed that as a matter of prosecutorial discretion, it would only pursue criminal action against businesses that were believed to have maintained naked no-poach agreements after the issuance of the 2016 Guidance.

In the consent agreement, the agency negotiated two provisions that reflected a change from the Obama Administration. First, whereas past consent agreements generally called for open-ended agency review of the offending businesses’ competitive activities, this agreement contained a sunset clause calling for the agency oversight to terminate in the absence of further violations.  Second, the agreement lowered the agency’s required standard of proof – down from clear and convincing to the preponderance of the evidence — when establishing a violation of the terms of the agreement.  In other words, while the agreement reduces agency oversight, it makes it easier for the agency to enforce the settlement if there are any further no-poach agreements.

The Road Ahead

Given Mr. Delrahim’s January 2018 comments, we anticipate that the agency will soon initiate one or more criminal actions in relation to alleged naked no-poach agreements that took place after the 2016 Guidance was published.  Meanwhile, the popularity of private civil actions should only continue to increase.  For instance, on April 11 and April 23, 2018, employees in Pennsylvania and Maryland, respectively, filed federal class action lawsuits against Knorr and Wabtec, based on the same conduct alleged in the Agency’s Complaint.

Companies are encouraged to contact a Jackson Lewis attorney with questions about compliance with antitrust laws as relate to non-solicitation of employees agreements.

Brazilian Courts Set Standards For Enforcement Of Non-Compete Agreements

On April 20, 2018, Jackson Lewis published an article entitled, “Brazilian Labor Courts Continue to Emphasize Importance of Non-Compete Clause Limitations,” by John Sander and Maya Atrakchi in the New York City office.  John currently serves as Chairman of L&E Global, a global alliance of premier employer’s counsel firms.  Our colleague Gabriela Lima Arantes at the Brazil law firm Tozzini Freire, a member of L&E Global, co-authored this article.  Through L&E Global, Jackson Lewis can assist with international employment law issues, including in the area of non-compete, trade secrets and unfair competition law.

Readers are encouraged to follow this link to learn more about L&E Global Alliance, or contact your favorite Jackson Lewis attorney for further information.

Massachusetts Legislature Pushes Forward With Amended Non-Compete Bill

This Blog has previously covered the six non-compete bills that were introduced in the Massachusetts Legislature in 2017 (See articles dated December 27, 2017, and March 2, 2018). On April 17, 2018, the Joint Committee on Labor and Workforce Development submitted a revised bill, House Bill 4419 (“H 4419”), in place of the prior bills.  Through this action, the Joint Committee has taken a significant step toward the finish line regarding proposed non-compete legislation.

This post offers some quick impressions following our initial review of the bill.

Definition of Employee

Resolving a split among the 2017 bills, H 4419 proposes to include independent contractors under the definition of a covered “employee.”

Consideration

Like all contracts, non-compete agreements must be supported by valuable consideration. H 4419 provides that non-compete agreements presented to an employee after the commencement of employment must be supported by additional consideration over and above continued employment.  Further, while the bill does not impose a similar requirement for agreements that are entered into in connection with the commencement of employment, no employer may enforce a non-compete covenant without complying with the bill’s “garden leave” provision (see below).

Permissible Scope of a Non-Compete Covenant

Under H 4419, a non-compete covenant must be no broader than necessary to protect a legitimate business interest; must include a geographic scope that is reasonable “in relation to the interests protected”; must not exceed one year in duration from the date of separation (with tolling up to one additional year if the employee is found to have breached a fiduciary duty or unlawfully taken his or her former employer’s property); and must be reasonable in the scope of the proscribed activities in relation to the interests protected.

Requirement of Garden Leave Pay or Some “Other Mutually-Agreed Upon Consideration”

Like three of the 2017 bills, H 4419 requires the payment of “garden leave” or some “other mutually-agreed upon consideration” whenever an employer chooses to enforce a non-compete covenant following the date of separation (for a more in depth discussion of the “garden leave” concept, see our article dated December 27, 2017). For agreements that call for “garden leave” pay (as opposed to “other … consideration”), the employer must, during the restricted period, continue paying the former employee an amount defined as “at least 50 percent of the employee’s highest annualized base salary paid by the employer within the 2 years preceding the employee’s termination.”

H 4419 diverges from the 2017 garden leave bills by imposing no requirements on the value or timing of any “other” consideration that the employer and employee may agree upon as an alternative to garden leave. Under the 2017 bills, the value of the alternative consideration needed to be equal to or greater than the statutorily-defined garden leave payments.  Further, the timing of the consideration needed to be in line with the applicable garden leave period.

H 4419 imposes no such conditions, and, as such, appears to allow parties to agree to less valuable consideration which could be provided to the employee at any time, including the commencement of employment (for instance, a hiring bonus). This “other mutually-agreed upon consideration” provision effectively negates any requirement that the non-compete contain a garden leave clause, and may be a sticking point for certain legislators as the bill makes its way through the legislative process.

Exempt Employees

Under H 4419, non-compete agreements may not be enforced against the following types of employees:

  • Employees who are classified as non-exempt under the Fair Labor Standards Act;
  • Undergraduate or graduate students who are engaged in short-term employment;
  • Employees who have been terminated without cause or laid off; or
  • Employees who are not more than 18 years of age.

Blue-Penciling Permitted

H 4419 permits courts to “reform or otherwise revise” an overly broad non-compete covenant to the extent necessary to protect the applicable legitimate business interests. Of note, most of the 2017 bills would have rendered overly broad covenants null and void.

Effective Date

Finally, barring any further revisions, H 4419 would take effect on October 1, 2018 if it is ultimately enacted. Further, any agreements entered into prior to that date would be governed by Massachusetts common law standards.

Conclusion

According to the Legislature’s bill scheduling calendar, H 4419 has a July 31, 2018 deadline for passage. Although summer is close, this should afford sufficient time to get it to a vote.

For further guidance about the pending bill, please contact a non-compete attorney in Jackson Lewis’s Boston Office, including Erik Winton, Stephen Paterniti or Sarah Herlihy.

Utah And Idaho Enact Employee-Friendly Amendments To Non-Compete Legislation

In the past week, two states have made modifications to their respective non-compete laws. On March 27, 2018, Utah imposed special restrictions on the use of non-compete agreements in the broadcasting industry.  One day later, Idaho modified the standard of proof that must be followed when a company seeks an injunction against a former employee or independent contractor who is violating a non-compete covenant.

Utah Restricts Use Of Non-Competes In Broadcasting Industry

On March 27, 2018, Utah Governor Gary Herbert signed a bill modifying the State’s Post-Employment Restrictions Act to significantly curtail the enforcement of non-compete agreements against employees in the broadcasting industry. The original bill, enacted just two years ago in the 2016 Legislative Session, was covered by us in an article dated April 7, 2016.

Utah’s original non-compete bill served two purposes. First, the bill imposed a one-year time limit on post-employment non-compete covenants, other than those included in “reasonable severance agreement[s]” and those “related to and arising out of the sale of a business[.]”  Second, the bill authorized employees to seek attorneys’ fees and actual damages against employers that attempted to enforce unenforceable non-competes.

With the new amendment, Utah has imposed special restrictions on the enforcement of non-compete covenants against employees of “broadcasting compan[ies].” Specifically, the amended bill bars the enforcement of non-competes against broadcasting employees unless they are paid a salary of at least $913 per week (i.e., $47,476 per year). Further, for broadcasting employees who meet the salary test, non-compete covenants will be valid only if:

  • The covenant “is part of a written employment contract with a term of no more than four years”; and
  • The employee is either terminated “for cause,” or the employee breaches the employment contract “in a manner that results in” his or her separation.

Finally, although the original one-year time limit on non-competes generally applies in the broadcasting industry, the amended bill prohibits non-competes from extending beyond the original term of the employee’s written contract. Consequently, if a broadcasting employee’s separation occurs less than one year before his or her contract expires, the restricted period must also end by the contract expiration date.

While curtailing the use of non-compete agreements for broadcasting employees, the Utah amendments stop well short of the broader prohibitions against non-compete agreements for broadcasting employees that exist in Arizona, Connecticut, the District of Columbia, Illinois, Maine, Massachusetts, and New York.

As discussed in our 2016 article, Utah’s non-compete law does not apply to non-solicitation and non-disclosure/confidentiality agreements. In discussing the broadcasting restrictions, Governor Herbert stated he would oppose any further limitations on the use of non-competes under Utah law.

Idaho Modifies Standard of Proof For Non-Compete Enforcement Actions

On March 28, 2018, Idaho repealed a two-year-old amendment to its non-compete law that had made it easier for employers to obtain injunctive relief against “key employees” and “key independent contractors” who violate their non-compete covenants. However, in approving the repeal, Governor C.L. “Butch” Otter questioned the wisdom of the move.

Under Idaho Code §44-2701 et seq., enacted in 2008, companies may enter into non-compete agreements with “key employees” and “key independent contractors” to protect a legitimate business interest, provided the restrictions are reasonable as to duration, geographic area and type of employment.  To be classified as a “key” employee or independent contractor, the statute requires proof that the individual has the ability, based on the nature of his or her position, “to harm or threaten an employer’s legitimate business interests.”  The statute further provides a non-inclusive list of “legitimate business interests,” which includes company goodwill, customer relationships, referral relationships, vendor relationships, confidential information, and trade secrets.

Effective March 30, 2016, the legislature amended the non-compete law to provide that if a company sought injunctive relief against a “key” employee or independent contractor, and the court found a violation of the non-compete covenant, the company would be entitled to a rebuttable presumption of irreparable harm. To rebut that presumption, the key employee or independent contractor had to prove that he or she had “no ability to adversely affect the employer’s legitimate business interests.”

On March 28, 2018, Governor Otter allowed the repeal of this rebuttable presumption of irreparable harm to take effect without his signature. With this action, Idaho has effectively placed the burden back on companies to establish a likelihood of irreparable harm before an injunction can be issued.

In a letter confirming his decision, the Governor expressed reservations about the repeal, writing that there was “no consensus within the business community” for the change.  Further, he expressed his support for a rebuttable presumption of irreparable harm, and suggested that the Legislature seek “a better solution” in the next Legislative Session.  Nevertheless, he opined that, “since it is my understanding that the 2016 language has never been tested in court, there seems to be little risk in removing it” for the time being.

Conclusion

These legislative developments reflect that non-compete reform remains a high priority for state legislatures throughout the country (see our recent articles regarding legislative initiatives in Massachusetts, New Jersey, New Hampshire, Pennsylvania and Vermont).  Companies with questions about the enforceability of restrictive covenants in their jurisdictions are encouraged to contact a Jackson Lewis attorney for further guidance.

Massachusetts Seeks Finality On Non-Compete Legislation

On December 27, 2017, we wrote about the Massachusetts Legislature’s efforts to regulate the use of non-compete agreements, including three bills that sought to require post-separation “garden leave” payments to former employees while they were restricted from engaging in competitive activities. Less than one month later, news reports suggested that negotiators in the Joint Committee on Labor and Workforce Development were nearing a compromise deal.

In an article posted on our website on March 2, 2018, Erik Winton (Boston), Clifford Atlas (NYC) and Colin Thakkar (Jacksonville) examine the areas of likely agreement and disagreement as the Legislature attempts to hammer out a final deal. The article also highlights certain areas in which additional clarification from the Legislature would be helpful to both employers and employees who are ultimately affected by the anticipated legislation.

We will continue to provide updates as the legislative process continues.

Wisconsin Supreme Court Applies Non-Compete Law To Invalidate Anti-Poaching Covenant

On January 19, 2018, a divided Wisconsin Supreme Court held that an employee non-solicitation covenant was overly broad and unenforceable under state law. In the decision, entitled The Manitowoc Company, Inc. v. Lanning, Case No. 2015AP1530 (Wisc. Jan. 19, 2018), the Court confirmed Wisconsin Statute §103.465, which governs covenants not to compete, extends to agreements not to solicit employees.  Because the employee non-solicitation covenant did not meet the statutory criteria for valid non-competes, the Court held it unenforceable in its entirety, “even as to any part of the covenant that would be a reasonable restraint.”

Factual Background

Manitowoc is a manufacturing company that produces food service equipment and construction cranes. In 1985 Manitowoc hired John Lanning as a chief engineer in its construction crane division.  Lanning held the position for approximately 25 years, until January 6, 2010, when he resigned his employment to become the director of engineering for one of Manitowoc’s direct competitors.  At the time of Lanning’s resignation, Manitowoc boasted a global workforce of approximately 13,000 employees.

After joining Manitowoc’s competitor, Lanning admittedly participated in efforts by his new employer to recruit at least nine Manitowoc employees. In response, Manitowoc sued Lanning for violating an agreement he signed in 2008 that included a covenant not to solicit Manitowoc employees. Under that agreement, Lanning committed, for a period of two years following his separation of employment, to “not (either directly or indirectly) solicit, induce or encourage any employee(s) to terminate their employment with Manitowoc or to accept employment with any competitor, supplier or customer of Manitowoc.”

Based on Lanning’s acknowledgment that he helped recruit Manitowoc employees within two years of his resignation, the trial court ruled in Manitowoc’s favor and awarded the company a significant amount in damages, including over $1 million in attorneys’ fees. However, Manitowoc’s victory was short-lived, as the Court of Appeals of Wisconsin overturned the trial court’s judgment on August 17, 2016.  In that decision, which we covered on our Blog, the court of appeals held that the employee non-solicitation covenant was overly broad and unenforceable under Wis. Stat. §103.465.

In its appeal to the Wisconsin Supreme Court, Manitowoc argued that Wis. Stat. §103.465 did not govern the covenant at issue and instead related only to traditional non-compete agreements. Manitowoc further argued that even if Wis. Stat. §103.465 applied to the employee non-solicitation covenant, the covenant was reasonably designed to protect the company’s legitimate interests.

Lanning’s Employee-Nonsolicitation Agreement Constituted A Restraint on Competition

Entitled “Restrictive covenants in employment contracts,” Wis. Stat. §103.465 provides that “[a] covenant … not to compete … is lawful and enforceable only if the restrictions imposed are reasonably necessary for the protection of the employer or principal.” The statute further states that “[a]ny covenant, described in this section, imposing an unreasonable restraint is illegal, void and unenforceable even as to any part of the covenant or performance that would be a reasonable restraint.”

Seizing on the statute’s express reference to covenants not to compete, and the absence of any reference to non-solicitation provisions, Manitowoc argued that the statute only covers traditional non-compete covenants. Lanning’s employee non-solicitation covenant did not use the words, “covenant not to compete,” and did not prevent him from accepting comparable employment with Manitowoc’s competitors.

Rejecting Manitowoc’s position as unduly narrow, the Court held that, viewed in its entirety, Wis. Stat. §103.465 is intended to cover any provision that constitutes a restraint of trade by restricting competition. The Court went on to identify types of agreements that could meet that threshold for coverage under the statute, including traditional non-compete agreements, non-solicitation agreements, non-disclosure/confidentiality agreements, and even “no-hire provision[s] between two employers.”

In reviewing Lanning’s employee non-solicitation covenant, the Court stated that the covenant: (i) restricts Lanning from competing with Manitowoc through recruitment; (ii) restricts Lanning’s new employer from “competing fully … in the labor pool”; and (iii) restricts Manitowoc’s other employees from competing fully with the Company by “insulating [them] from Lanning’s solicitations.” As such, the Court concluded, the covenant was governed by Wis. Stat. §103.465. 

Employee Non-Solicitation Agreement Too Broad to Warrant Enforcement Under State Law

Applying the statute to Lanning’s employee non-solicitation covenant, the Court ruled that the covenant failed to meet the requirement that it be “no broader than is necessary to protect the employer’s business.” First, the covenant prohibited Lanning from encouraging Manitowoc’s employees to resign their employment for any purpose, even a non-competitive one such as retirement.  Second, it restricted Lanning’s access to “any” of Manitowoc’s 13,000 employees, even those with whom he had never worked and about whom he had no unique knowledge or relationship.

Essentially, the purpose of the employee non-solicitation covenant was not simply to prevent Lanning from competitively exploiting personnel information and/or relationships he gained through his employment with Manitowoc, but to help Manitowoc maintain its entire workforce. Such purpose, according to the Court, “flouts the generally recognized principle that the law ‘does not protect against the raiding of a competitor’s employees.’”

Finally, Manitowoc argued that even if the employee non-solicitation covenant was unduly broad, the covenant was lawful to the extent that it prohibited the actual conduct in which Lanning was found to have engaged.  The Court rejected that argument as well, noting that Wis. Stat. §103.465 does not permit judicial modification of overly broad restrictive covenants.  “Our legislature … has declared that if an agreement imposes an unreasonable restraint, it is illegal, void, and unenforceable even as to so much of the covenant as would be a reasonable restraint.”

Lessons Learned

It bears noting the sharp disagreement among the Court’s majority regarding the appropriate scope of Wis. Stat. §103.465. Specifically, while three Justices concurred with the result of the lead opinion, they criticized the opinion for suggesting that the statute governed anti-competitive agreements between companies.  They also disagreed with the lead opinion’s consideration of the employee non-solicitation covenant’s anti-competitive impact on non-parties to the agreement, including Lanning’s new employer and Manitowoc’s other employees.  Based on a plain reading of the text, the concurring Justices argued that Wis. Stat. §103.465 governed only covenants between an employer and employee, that restricted the competitive activities of the party employee.

Notwithstanding such disagreements, Wisconsin employers should ensure that any restrictive covenant agreements between an employer and an employee are narrowly tailored to meet the conditions of Wis. Stat. §103.465. Further, as explained in our recent article regarding federal antitrust laws, employers should be extremely cautious about entering into anti-competitive agreements with other companies, regardless of the applicability of Wis. Stat. §103.465.  Companies seeking to ensure their compliance with restrictive covenant and related laws are encouraged to contact a member of Jackson Lewis’s Non-Competes Practice Group for guidance.

Lead Antitrust Attorney Hints At Upcoming Prosecutions For No-Poach Agreements

The chief prosecutor in the U.S. Department of Justice’s Antitrust Division signaled last week that his unit expects to initiate criminal actions against multiple companies accused of entering unlawful pacts not to hire each other’s employees.  Such action would fulfill earlier promises, by both the Trump and Obama Administrations, to treat employment-related antitrust violations with the same seriousness afforded to more traditional, consumer-based antitrust issues.

The public often thinks of price-fixing and other consumer-focused schemes as “traditional” antitrust violations.  However, it can be similarly unlawful for companies to form agreements that suppress the opportunities of employees. On October 20, 2016, the Department of Justice and Federal Trade Commission published Antitrust Guidance for Human Resource Professionals, cautioning employers that agreements with other companies to limit the wage rates of similar types of workers, or not hire each other’s workers, are unlawful and would be subject to criminal prosecution. Among other things, the Guidance cautions employers on sharing wage information under some circumstances.

Less than one month after the above-referenced guidance was issued, Donald Trump was elected President. Despite the change of Administration, the Antitrust Division has indicated that it fully intends to continue the charge against wage-fixing and no-poaching agreements.

On January 19, 2018, the lead attorney of the Antitrust Division, Makan Delrahim, discussed the Division’s position toward no-poaching agreements during a conference hosted by the Antitrust Research Foundation at George Mason University’s Antonin Scalia Law School. During the presentation, which Law 360 reported later that day, Mr. Delrahim told attendees that the Division would be initiating multiple criminal prosecutions “[i]n the coming couple of months[.]”  Not surprisingly, he did not share the names of any companies that the Division intended to charge in those actions.

The Antitrust Division’s interest in criminal prosecutions represents a continuation from the Obama Administration.  Nevertheless, Mr. Delrahim identified one way in which the Division intended to diverge from the prior Administration. Specifically, the Division intends to move away from consent agreements that implement behavioral remedies, and look more closely at structural remedies such as divestitures.  As Mr. Delrahim explained, behavioral remedies create a need for continuing administrative oversight.  Further, even with the additional oversight they still can be extremely difficult to enforce.  On the other hand, by requiring changes to a company’s corporate structure, the Division can reduce a company’s ability to violate antitrust law, with or without costly monitoring.

On November 9, 2016, we published an article discussing the above-referenced Guidance for Human Resource Professionals.  We will provide further updates as any of the anticipated criminal actions are announced.  Companies seeking to ensure their compliance with employment-based antitrust laws are encouraged to contact a member of Jackson Lewis’s Non-Competes Practice Group for guidance.

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