No-Poach Agreements: A No Go Area under Competition Law?

No-poach agreements are currently a hot topic in European competition law. The European Commission is vigorously investigating these types of agreements across a variety of sectors. Indeed, the Commission has recently carried out 'dawn raids' in Ireland at the premises of Irish several companies that are active in the data centre construction sector in Europe. 

These types of agreements can assume various forms: “no-hire” agreements where employers agree not to hire each other's employees, or “non-solicitation" agreements, where employers agree not to actively approach each other employees with job opportunities. Whatever their form, no-poach agreements are considered to be harmful because they lower wages and hinder labour mobility, thus reducing productivity and innovation.

No-poach agreements will in many cases fall foul of EU and Irish competition law. Indeed, in its Horizontal Guidelines, the Commission has stated that no-poach agreements are likely to infringe EU competition law by object, i.e., by their very nature they are viewed as harmful to the proper functioning of competition, a view that is likely to be shared by the CCPC in Ireland. 

It is possible that no-poach agreements may qualify as ancillary restraints under strict conditions when the parties are in either horizontal or vertical relationships. However, a no-poach agreement may only qualify as an ancillary restraint if it meets each of the following  conditions: 

1. There is a main non-restrictive transaction, for example a horizontal joint venture agreement or a vertical supply agreement; 
2. The restraint is objectively necessary for the main transaction’s implementation; and 
3. The restraint should be proportionate, and directly related, to the implementation of the legitimate objective of the agreement. 

So, for example, a non-poach agreement for the implementation of a legitimate Research & Development (R&D) agreement may be an ancillary restraint if it is objectively necessary to implement the R&D agreement and is proportionate to its objectives (e.g., where the parties would only assign key personnel to the joint venture if they were sure that the other party would not poach the best employees).

The parties to such agreement would need to demonstrate that there were no less restrictive means than a non-poach agreement of ensuring the existence of the same relationship, the clause would have to be strictly limited to the employees directly involved in the performance of the agreement, and only for a justifiable duration and territorial scope. 

No-poach agreements are unlikely to be exempted under EU competition law. Agreements which restrict competition (including by object) may be exempted if it is proven that they have pro-competitive effects, in particular if they satisfy each of the following criteria: 

1. The agreement contributes to improving the production or distribution of goods or contributes to promoting technical or economic progress; 
2. Consumers receive a fair share of the resulting benefits; 
3. The restrictions must be indispensable to the attainment of these objectives, and
4. The agreement must not afford the parties the possibility of eliminating competition in respect of a substantial part of the products in question. 

However, while no-poach agreements may in principle have pro-competitive effects as they may may encourage joint investment, doubts exist around the resulting net efficiencies and, as noted earlier, no-poach agreements tend to artificially lower wages. Moreover, there are usually less restrictive ways of achieving the same goal of avoiding the loss of key employees and critically the know-how they possess to a competitor for instance, non-disclosure agreements, gardening leaves, and non-compete clauses (provided they comply with applicable competition and restraint of trade laws).

For more information, please contact John Gaffney or your usual Beauchamps contact.