A no-poach agreement is just slightly different than a non-compete agreement. A majority of states permit employers to place non-compete clauses in employer contracts and even have standalone non-compete agreements with employees that are separate from the employment contracts that are executed. California is known as being one of the few states that rarely permits a non-compete clause or contract to exist between employer and employee. It just so happens that a lot of tech companies are based in the state.
Even outside of California, companies have to be careful with the type of non-competes they use with their employees. It is not as if a company will be punished if the non-compete is too overbroad; the non-compete just will not be enforced by a court of law.
When a non-compete is designed to protect some legitimate interest (e.g. a trade secret), it will be enforced if reasonable in duration and geographic coverage. When it is overbroad, but no taint of unfairness exists, some courts will modify the restrictions. Reasonableness is based on duration of the restriction, territory covered, and subject matter. Some courts will apply the “blue pencil rule” in which the offensive portions of the contract are excised and the remainder enforced, if read alone, it makes sense grammatically.
Quite a few tech companies, including Adobe, Google, Intel, Intuit, Apple, and Pixar were entering into no-poach agreements with each other, where instead of inserting language into the employment contract with employees that would restrict their job opportunities after leaving their current employment, the companies were agreeing with each other to not pursue one another’s former employees.
On its face, this seems like an extremely anticompetitive process, where employees are restricted from moving and many tech companies cannot grow with the right people. The Department of Justice agrees. Collusion is something the government wants to prevent, whether it is occurring in Major League Baseball or the high tech sector. Interestingly, the DoJ borrows some of the guidelines from non-competes when it mentions that none of the agreements were limited by geography, job function, product group, or time period. It seems as though non-poaching and non-compete agreements are similar in that sense as well.
Here were some of the DoJ findings:
- Apple and Google executives agreed not to cold call each other’s employees.
- Senior Apple and Adobe executives agreed not to cold call each other’s employees.
- Apple and Pixar executives agreed not to cold call each other’s employees.
- Google and Intel executives agreed not to cold call each other’s employees.
- Google and Intuit executives agreed that Google would not cold call any Intuit employee.