YourABA: November 2012
YourABA October 2012 Masthead

Help for clients with antitrust issues
in labor markets

Employee turnover, especially of top talent, can cost business owners in time and productivity. As a result, employers seek ways for valued workers to stay put. But how far can they go? Traditional offerings such as a bigger salary or bonuses aren’t always effective, but hiring-restriction agreements between companies aren’t the answer either, say Michael Lindsay and Katherine Santon of Dorsey & Whitney LLP in an issue of Antitrust magazine.

A recent Department of Justice case investigated allegations of such agreements among high-tech companies that restricted their ability to hire each other’s employees. The investigation resulted in civil complaints against some of the companies, followed by settlement agreements and a federal class action. The case has brought the antitrust aspects of employer competition for employees to the fore, say Lindsay, a partner at Dorsey & Whitney and chair of its Antitrust Practice Group, and Santon, an associate in Dorsey’s trial group.

So what are the antitrust guidelines that employers should follow? Lindsay and Santon suggest that counsel can offer this advice to an employer facing the prospect of employee departures:

  • Rely on employment covenants when possible. A noncompete agreement, when enforceable, can keep employees from leaving for a competitor. Employers should identify employees for whom noncompete agreements are especially important. In most states, the agreement must be signed when the employee is offered the position or must be supported by independent consideration.

  • Contemplate unilateral practices. An employer might, for example, have its own “do not call” list and impose a similar restriction on any recruiting firms that it engages. The employer should document that this is, in fact, a unilateral policy, adopted and enforced without communication with any other company that competes in the employer’s markets. The employer should also periodically confirm that the ban on communication with other firms has been honored.

  • Consider agreements that provide for efficient dispute resolution. There is a difference between an agreement not to solicit or hire each other’s employees and an agreement to streamline resolution of claims that an employee’s hiring violates a noncompete. This will have the greatest value only in industries with relatively extensive noncompetes and few industry players.

  • Adopt a payback-for-training requirement. Before an employee begins a new job, an employer may ask the employee to sign a contract in which the employee agrees to repay training costs up to a certain amount if the employee resigns or is fired within a certain time period following the employee’s start date. To ensure enforceability, an employer should draft terms that are reasonable regarding the repayment amount and the length of time an employee must remain at the company to escape the repayment obligation.

  • Try an employee retention agreement. An agreement that offers a sign-on bonus can be a useful retention strategy. If the employee leaves before the end of the agreed-upon length of employment, a portion or all of the bonus must be repaid.

  • Think about employees whose retention might be jeopardized through a joint venture or other collaboration. Before entering into any kind of collaboration, an employer should ask itself whether the collaborator might use the collaboration for recruiting and how the employer might protect itself.

Antitrust is published by the ABA’s Section of Antitrust Law.

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