No-Poach Recruiting Agreements Cost Employers $25.5 Million

Think it’s OK to agree with other employers not to recruit their employees if they won’t go after yours? Think again.

That kind of arrangement can get you into some legal trouble. Just ask a group of asset and wealth management companies that recently got hammered to the tune of $25.5 million for entering into such an agreement.

Handshake Deal: No Recruiting of Workers

The defendants in this case are big players in the asset and wealth management space. In fact, the three groups of defendants – referred to as the Mariner defendants, the American Century defendants and the Tortoise defendants – together manage nearly $305 billion in assets.

In 2008, a senior American Century employee took a job with Mariner and recruited other American Century employees to come with him. After that happened, American Century and Mariner entered into a secret agreement not to recruit or hire each other’s employees.

DOJ Enters the Picture

When the Department of Justice got wind of the agreement, it conducted an antitrust and conspiracy investigation. That investigation ultimately produced a non-prosecution agreement and an agreement by American Century to commit $1.5 million to affected employees.

A private suit filed against the group of asset management giants alleged that between March 2014 and March 2018, the defendants illegally conspired via the agreement to squelch competition by agreeing not to go after each other’s employees.

No-Poach Recruiting Agreements: What’s the Problem?

The problems with the agreement, the plaintiffs said, were that it:

• Diminished employee mobility
• Limited employee opportunities to negotiate for more favorable employment terms, and
• Artificially deflated the compensation of affected employees, and caused their wages to be lower than they would be in a competitive marketplace.

The class action suit, which included named plaintiffs Jakob Tobler and Michelle McNitt, specifically alleged two claims under the federal Sherman Act; a single state-law antitrust claim; a claim of tortious interference with business expectancy; and a single claim for unjust enrichment.

Mediation Leads to Settlement 

A full-day mediation session in February of this year laid the groundwork for a settlement, and earlier this month, the plaintiffs’ lawyers submitted to the court an unopposed motion for final approval that explained the agreement’s specific terms.

The settlement class consists of employees who worked for one of the firms between 2012 and 2020. It excludes boards of directors as well as C-suite employees. The motion says there are 4,410 class members.

Under the agreement, the defendants paid $25.5 million into an escrow account. Of that total, $8.5 million will go toward attorneys’ fees, while about $396,000 is allocated for costs and expenses. That leaves an average estimated payment of $3,741.05 for each affected employee, the motion says.

Tobler and McNitt will each receive “service awards” of $15,000, the motion adds.

The specific amount awarded to other individual employees will depend on their duration of employment, when they were employed, and how much they earned.

Motion: This Is a Fair Deal

To boost its push for final approval of the agreement, the motion says:

• Lawyers for the plaintiffs have provided “excellent representation”
• The settlement was negotiated at arm’s length
• The settlement provides relief that is “fair, reasonable, and adequate,” and
• The settlement treats class members equitably.

Why This Matters to HR

On the surface, it may not seem like a terrible idea to enter into a mutual arrangement with other employers not to recruit each other’s employees. But in fact, it is exactly that: a terrible idea.

Why? These agreements wrongly stifle competition and violate federal antitrust laws, including the Sherman Act. As they did in this case, they can lead to government enforcement action as well as civil liability.

When it comes to finding and keeping the best employees, stick to the tried-and-true basics. These include:

• Be open, inclusive and transparent with respect to your recruitment practices.
• Know what it takes in terms of compensation to hire and retain top talent.
• Whenever possible, provide opportunities for professional and personal growth.
• Have an effective and comprehensive onboarding process.
• Assign mentors to employees.
• Encourage active feedback from employees; ask them about their level of job satisfaction and solicit suggestions for improvement.