No-Hire Rulings Forget Competition

Abstract

Two recent and noted antitrust rulings on the legality of no-hire (or “no-poach”) agreements paid lip service to preserving and promoting competition for employees but in the end failed to apply competition as a standard. Instead—and this is seen only deep in the weeds of the decisions themselves, on careful reading—judges demanded that no-hire agreements be held illegal only when they constitute abuse of market power, more or less. These decisions impliedly distinguish horizontal agreements not to compete for employees from horizontal agreements not to compete for customers, or on price. The opinions tend to “require careful economic analysis” of complex questions (one of them said) in every case—something courts are ill-equipped to do. A rule focused more on competition would not only better promote competition for labor but also prevent market power abuse and give providers of labor the same rights as consumers and other sellers. Most courts have conceded that no-hire clauses are prima facie illegal. They should be no more protected than price-fixing agreements.

This Article first explains the disjunct between competition as a legal standard, on one hand, and market power abuse regulation, on the other, and introduces the no-hire clause fact pattern. It then delves deeply into the standards, required proof, and rhetoric of (1) United States v. Patel (D. Conn. Apr. 28, 2023), which acquitted defendants from a Department of Justice indictment under Sherman Act § 1, and (2) Deslandes v. McDonald’s USA, LLC (7th Cir. Aug. 25, 2023), which (a) reversed a dismissal of a civil complaint that the McDonald’s franchise agreement no-hire clause violated the Sherman Act but (b) suggested several ways that the district court on remand could dismiss it again. Both Patel and Deslandes hesitate to apply a standard of competition to no-hire fact patterns. In Patel, that refusal was fatal to the indictment, and in Deslandes it may yet kill the complaint. More should be required of horizontal competitors who agree to cease competing for labor. They should show that more actual competition resulted from their agreement, or be held liable.