Overview
On December 4, the Federal Trade Commission (FTC) filed a complaint and consent decree against Guardian Service Industries, Inc. (Guardian), a building service contractor which operates in New York and New Jersey, over "no-hire" agreements – also commonly referred to as "no-poach" agreements. This action aligns with the agencies' ongoing initiative against no-poach agreements and marks the first instance of an antitrust agency challenging such agreements in vertical contracts. But the case suggests a weakening resolve against no-poach agreements that may further develop under the incoming Trump administration, which will likely be hostile to labor market antitrust theories.
According to the complaint filed with the FTC's in-house court, Guardian's no-hire agreements in its customer service contracts prevent building owners and competing building service contractors from hiring Guardian’s employees, even after contract termination. The complaint alleges that these no-hire agreements limit Guardian employees, including concierge personnel, custodians, and maintenance technicians, from negotiating for higher wages, better benefits, and improved working conditions.
Under the proposed consent order, Guardian must stop enforcing no-hire agreements and inform customers and employees that these agreements are no longer in effect. Guardian must also take steps to void all existing no-hire agreements. This includes posting clear and conspicuous notice to each new employee upon hire and in any shared employee spaces, such as breakrooms, stating that their employment will not be subject to a no-hire agreement. Additionally, Guardian is prohibited from requiring any person who is party to an existing no-hire agreement to pay any fees or penalties relating to a no-hire agreement.
The lessons from the Guardian case are mixed. On one hand, it is notable as the antitrust agencies' first action against no-poach terms in a vertical contract. This marks a departure from their previous focus on "naked" no-poach agreements. The FTC's complaint notes that despite the supplier-buyer relationship between Guardian and its customers in the building services market, "Guardian and its customers are direct competitors in certain labor markets for building services workers,” recognizing that a supplier and a buyer can compete for workers. Indeed, if there was no horizontal competition for workers between the supplier and the buyer, there would be no need for the no-hire provision in the first place. For companies using no-poach terms in vertical contracts – whether with customers or suppliers – the case serves as a warning to exercise caution with no-poach provisions in any contract.
On the other hand, while the Department of Justice Antitrust Division (DOJ) and FTC's Antitrust Guidance for Human Resource Professionals (Guidance) state that "naked … no-poaching agreements . . . are per se illegal" and subject to criminal prosecution, the FTC did not refer this matter to the DOJ for criminal prosecution. After several DOJ losses in no-poach criminal trials, the relatively light consequence for Guardian – a "sin no more" cease-and-desist order without monetary penalties or strict compliance requirements, not to mention any jail time or probation – could seem like a retreat.
One might consider the possibility that the FTC viewed the no-poach provisions in question as ancillary to the building service contracts. When met, the ancillary restraints doctrine renders a per se violation a rule of reason case, and typically, the DOJ refrains from pursuing criminal prosecution in such instances. That concern about a possibility of an ancillary restraints defense may have been enough for DOJ to pass on criminal prosecution, leaving the FTC to proceed with the matter civilly. Although the complaint does not say, it may be that the FTC believed that an ancillary restraints defense would not have succeeded here, for two reasons.
- Reflecting the ancillary restraints doctrine, the Guidance states that when a no-poach agreement is "not reasonably necessary to a larger legitimate collaboration between the employers, the agreement is deemed illegal without any inquiry into its competitive effects." The complaint repeats back this standard, asserting that "[a]ny legitimate objectives of Guardian’s conduct as alleged herein could have been achieved through significantly less restrictive means." This allegation, if true, appears to preempt the ancillary restraints defense.
- The Seventh Circuit in Deslandes v. McDonald's set a very high bar for applying an ancillary restraints defense to a no-poach agreement. For more details, please refer to our previous blog post.
Thus, the Guardian matter could signal a hesitancy to prosecute criminally no-poach terms in otherwise lawful vertical agreements, but a determination at least to pursue such terms civilly. On the other hand, the FTC filed the Guardian complaint on a 3-2 vote, with both Republican Commissioners opposed. This may signal that the incoming Republican administration will not challenge no-poach terms in vertical agreements at all. But risk remains.
With that in mind, our recommendation continues to be that companies be cautious when using no-poach agreements, both in horizontal and vertical contexts. If your company would like to discuss recent developments in no-poach enforcement or explore what to expect from the new administration on antitrust issues, please contact Lee F. Berger or John J. Kavanagh.
