While talent acquisition professionals work to identify too few candidates for too many vacant roles, the introduction of legal agreements incorporating restrictive covenants can bring the whole process to a screeching halt.
Nondisclosure, also called confidentiality, agreements; nonsolicitation, also called no-poaching, agreements; and noncompete agreements are contracts that embody covenants designed to restrict disclosure of information, recruiting, direct competition and more. Covenants within these agreements can control career trajectories and compensation by way of employee mobility.
To help recruiters and HR pros better understand these agreements — what they are and how they work — HR Dive spoke with Colin Kass, partner and antitrust group co-chair at Proskauer in Washington, D.C., to learn more.
This interview has been edited for length and clarity.
HR DIVE: How are antitrust laws applicable to the workplace?
COLIN KASS: Antitrust itself is a pretty broad area. Some examples of traditional antitrust compliance are protections against risk of price-fixing suits and other forms of monopolization; and then there's sort of a separate area dealing with more recent developments — hot topics, which could be of particular interest to HR professionals.
Why is antitrust a hot topic for HR practitioners? What do they need to know?
Antitrust is an HR concern because a lot of companies use standard noncompete, or nonsolicitation, provisions and other restrictive covenants, and these contracts are often implemented by the HR function.
Basically anything that is employee-focused, that relates to employee relationships, that can be used to attract or retain employees, including agreements with other employers about those types of activities, pertains to antitrust and can raise antitrust issues.
What has been the evolution of these agreements?
In the past, a court would look at the agreement, asking whether or not these were reasonable restraints, and if the court found a restraint unreasonable, it might blue line that restraint to narrow its scope until that restraint could be considered reasonable, in terms of both duration and geography.
But a few years ago, companies started to employ these noncompete provisions as sort of a matter of course, even where employees don't really have access to substantial confidential information.
This became most prominent in the area of fast food — I mean, somebody that works at a McDonald's, for example, doesn't hold a lot of trade secrets for McDonald’s — and it spread among hotels, gyms, even reporting or media organizations.
In some instances, where employers have a significant share of the relevant labor market, they have imposed these restrictive covenants. Many industries are affected since, generally, people didn't view these contracts as anticompetitive.
Are you saying that, at one time, people didn't think these types of agreements were anticompetitive?
Yes, and that's because antitrust laws are generally designed to help consumers, lower prices, and the like. For example, where the price of labor is elevated, so is the price of the end product, and that could hurt consumers. So, people would think that having a good agreement among employees and employers might actually be an efficiency that reduces costs and, generally, that might be viewed as a good thing; but in recent cases, the DOJ basically said “We don't agree with that.”
Why have government agencies become involved?
The Department of Justice, the Federal Trade Commission, state agencies and private plaintiffs are now focusing on the impacts of various types of conduct on labor markets. This includes, for example, provisions related to the exchange of information, wages and other terms and conditions of employment that employers might impose on employees through noncompete, or no-poaching agreements, and other agreements.
It seems like, as long as new ideas keep coming, companies might continue to employ these restrictive covenants. Is innovation somehow at fault?
That's where it started. Competition for the end user, the customer, is really about competition for the sales rep. If that employee goes from one company to another company, and brings a fair amount of business along with them, it impacts both then-present and downstream markets. So, the argument is that a no-poaching, or nonsolicitation, agreement, could at least limit competition between two companies.
In theory, it was a way those employers might try to protect trade secrets, but those types of agreements directly restrain the labor market. A serious concern came to light more than 10 years ago when the first no-poaching cases arose out of a number of high tech firms where employers would, among themselves, reach agreements not to compete for each other's employees.
About that time, the DOJ enacted guidelines relating to this, announced criminal pursuit of the most egregious cases, then proceeded to do that very incrementally, picking up speed about five years ago. Now, in California noncompete agreements between employer and employee are basically invalid, as a matter of state law.
What advice do you offer to HR and those in the C-suite?
For HR, exchanging information relating to the terms and conditions, benefits, wages of employees with other employers raises significant antitrust concerns. When needed, make sure to obtain this information the right way.
For the C-suite, first, an employer should make decisions unilaterally and independently, without entering these agreements with other employers. Second, if an employer has power over a segment of the labor market, restrictive covenants in their agreements should be really narrowly crafted.
Companies should ensure they have a robust antitrust program in place so that, if they do get in trouble, they’re able to seek leniency from the government. In the event that something happens, having a strong antitrust policy is very, very important.