Be Cautious with 'Do Not Recruit' Agreements
The big question, can employers have a gentleman’s agreement not to hire each other’s talent? These type of agreements have existed for years and it has never been questioned that they might be illegal. From an employer’s point of view, it seems logical not drive up each other’s recruiting and training cost by merely trading personnel (being incestuous).
Why all of sudden is it a problem? What has changed? It never created a fuss in the past. As I said, this has happened for years without incident. It seems logical and practical not to steal each other’s talent. There is nothing to be gained other than added expense. That certainly has been the logic.
As a talent acquisition professional, we have seen and lived under these agreements for many years. Many of us are still living under these side agreements today. They typically are created at the senior executive level suite. The question is, are they legal? At the direction of leadership, we have complied with the terms of these informal agreements which are often times based on a personal handshake. Some of us have even gotten into trouble by unknowingly violating the terms of the agreement (by hiring the other firm’s staff). Then having to fall on the sword (saying it was me and not an orchestrated plot by my organization) and apologize to the offended employer for violating the terms and swearing it will never occur again. And, some of the time, these violations result in an unwanted competitive talent war. I assume this all sounds too familiar.
So again, are these agreements a problem? Unfortunately, to much of our surprise, the answer may be yes. They may be a violation of the Sherman Act. Agreements between organizations not to hire each other’s employees may be illegal as Apple and Google discovered. A secret agreement between Apple and Google resulted in a class-action lawsuit that was expanded to include both Intel and Adobe Systems resulting in a $415 million fine for breaking U.S. antitrust laws. As it relates to this specific incident…after receiving a complaint from Steve Jobs of Apple, Eric Schmidt, President/CEO sent an email to Google's HR people saying; "I believe we have a policy of no recruiting from Apple and this is a direct inbound request. Can you get this stopped and let me know why this is happening? I will need to send a response back to Apple quickly so please let me know as soon as you can. Thanks Eric". Schmidt's email led to a recruiter for Google being "terminated within the hour" for not having adhered to the illegal scheme. Under Schmidt, there was a "Do Not Call list" of companies Google would avoid recruiting from. According to the court filing, another email exchange shows Google's Human Resources Director asking Schmidt about sharing its no-cold call agreements with competitors. Schmidt responded that he preferred it be shared "verbally, since I don't want to create a paper trail over which we can be sued later?" The Department of Justice ruled that these types of agreements diminish important competition between the firms to attract highly skilled technical and other employees to the detriment of affected employees who had less access to better job opportunities and higher pay.
This legal ruling is not limited to Silicon Valley or the State of California. Recruiting and retaining top talent remains a critical issue for all industries. Since 2010, the US Department of Justice has issued more than $2.3 billion in fines, and nearly 30 executives have pleaded guilty and accepted prison sentences.
Sheldon Klein, a partner at Butzel Long PC said “human resources is one of the ‘great unrecognized risks’ in any organization because companies often don’t think of employees as part of the procurement process”. The crux of the issue is whether an employer is inhibiting an employee’s ability to move from one employer to another without his or her knowledge or consent. This is especially dangerous if it is between two (2) competitive organizations. Klein says, “personnel activities between 2 competitors often times create a meaningful antitrust case. He advises to recognize the risks; horizontal agreements are the stuff that can send you to jail”. However, most state laws permit an employer to enter into non-compete agreements directly with their employees; prohibiting them from working with a competitor in a certain region for a defined period of time.
So what to do? Do we eliminate these unwritten non-solicitation of employee agreements between organizations? Do we proceed with caution? Or do we advise leadership and our employer of the potential risk? The answer is yes! The right approach is to advise leadership and the employer of the potential risks. In the end it is still their call/their decision. They have to own it. They cannot shift the risk, the exposure or the liability. We as talent acquisition professionals did not create these side agreements nor set the terms. We cannot be insubordinate, but nor can we be remiss of our duty/responsibility to advise and consult. Leadership and the employer must be made aware of the potential problem and the law. They need to know how the courts have ruled on these types of matters in the past. They need to thoroughly understand their exposure.
Employers would do well to heed the lessons evident from the Department of Justice’s Complaint against Adobe, et al. When an employer is seeking relief from competitors' efforts to recruit away its employees, simply reaching mutual non-solicitation and non-hire agreements with certain competitors, while possibly solving the problem of defecting employees, could expose the organization to unwanted interest and even prosecution by governmental authorities under the antitrust laws. In most cases, particularly for large, high-profile companies operating in a concentrated market, this quick fix should be avoided. Alternative ("pro-competitive") methods of encouraging employees to stay with the organization and spurn offers from competing employers should be explored and implemented.
Direct agreements with other companies to avoid soliciting and/or hiring the employees of those companies if agreed to should be limited in duration and scope, and should be entered into only when supported by legitimate business reasons. Employers may still have it as a term when settling their non-compete or raiding cases with competitors, when entering into severance agreements or when selling a business, among other circumstances commonly encountered. Broader industry-spanning agreements, however, that could truly foreclose employment opportunities to a significant segment of the market should be avoided.
So again, proceed with caution. Be aware that these side agreements may expose you and the firm to a law suit. There is no excuse for not knowing the law. As a talent acquisition professional, it is your job to stay current and to know the extent of the employment laws.
I wish you all good fortunes and good hunting, but most of all, keep it legal.