A No-Go for Employees’ Anti-Trust Claims Based on High-End No-Hire Agreements

Topics: Court Decisions, Employee Hiring, Discipline & Termination, Non-Compete and Trade Secrets

Recently, the United States Court of Appeals for the Second Circuit upheld the dismissal of a class action against defendants Saks Inc., Gucci, Prada, Loro Piana, Brunello Cucinelli and other luxury good manufacturers.

The Plaintiffs claimed the luxury good manufacturer defendants violated Federal Anti-Trust laws by entering into no-hire agreements with Saks. In 2023, we noted that the State of California came to the defense of the employees joining an amicus curiae brief.  

The agreements at issue were entered into between the luxury good defendants and Saks as the luxury good defendants agreed not to hire employees who were employed by Saks within the previous six months, unless managers from both companies approved the hire. Plaintiffs claimed that such agreements restrained competition, suppressed wages, and limited employee mobility.

The Court of Appeals agreed that the trial court got it right under several levels of analysis, so it’s a no-go on the employees’ appeal.

The Court of Appeals concluded that these were not per se unlawful because the agreements were not horizontal restraints on trade, and primarily impacted the vertical relationships among the luxury good defendants and Saks.  

The Court then applied the Rule of Reason analysis to the Complaint and concluded that the plaintiffs failed to show an actual adverse effect on competition in the marketplace. It was not enough to show that a specific plaintiff was harmed, but they failed to demonstrate an adverse effect on competition market-wide. The Court reviewed the operative complaint and found that it alleged harm in a purely conclusory manner without specific allegations that there was national market-wide suppression of compensation or mobility among all businesses employing such workers.

The Court of Appeals did not mention amicus briefing from any of the State Attorneys General.

What Employers Should Do In Light of This Decision

Employers need to be cognizant that this case was adjudicated under the Federal Sherman Act, many states, like California have their own anti-trust laws that may be interpreted differently.

Employers seeking guidance on no-hire, no-poach or covenants not to compete involving California employees should seek counsel, including Dan M. Forman and CDF’s Trade Secret Practice Group.