The ins and outs of no-poach provisions

No-poach provisions are agreements that prohibit one company from hiring another company’s employees. This article addresses whether no-poach provisions violate applicable antitrust laws, and more specifically, the conditions under which no-poach provisions are legal.

No-poach provisions are often horizontal restraints; that is, they constitute an agreement between or among competitors restricting the way in which they will compete with one another. Horizontal restraints are often unreasonable per se under federal antitrust principles, meaning they are deemed illegal without any inquiry into their anti- or pro-competitive effects.

However, if a horizontal restraint qualifies as an “ancillary” restraint, it is analyzed under the rule of reason, to determine if it is or is not legal. To qualify as an ancillary restraint, the restraint must be subordinate and collateral to a separate, legitimate transaction.

Ancillary restraints are then determined to be permissible or impermissible, depending upon:  (1) whether the challenged restraint has a substantial anticompetitive effect that harms consumers in the relevant market; (2) the procompetitive rationale for the restraint; and (3) whether procompetitive efficiencies could be reasonably achieved through less anticompetitive means.

Key appellate case

In August of 2021, a federal appellate court, in Aya Healthcare Services, Inc. v. AMN Healthcare, Inc., issued an opinion regarding a no-poach provision in a contract between a provider of travel nursing services and a health care staffing agency. The court began by finding that the restraint was ancillary to an otherwise legitimate relationship of one company using the staff of another company.

To respond to rapidly growing demand for travel nurses, which demand AMN was itself unable to supply, AMN contracted with Aya and other staffing agencies to provide additional nurses to meet that demand.  However, in exchange for the spillover assignments, Aya agreed, among other things, not to solicit AMN’s employees. Therefore, the restraint allowed competitors to give spillover assignments to other competitors without risking their established networks of traveling nurses.

Accordingly, the court found the no-poach provision legal because the restraint was reasonably necessary to the parties’ pro-competitive collaboration and resulted in greater productivity.

Also, the court found no substantial anti-competitive effects that harmed consumers in the market, such as an increase in prices resulting from the no-poach provision.

Although the court refused to find antitrust liability resulting from the no-poach provision in Aya Healthcare Services, public opinion against no-poach provisions and other noncompetition agreements is growing, and, therefore, one should expect more litigation in this area.

Barry F. Rosen is the chairman & CEO of the law firm of Gordon Feinblatt LLC.