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No Poach No Longer? The Legality of No Poach Agreements

by | Sep 6, 2023 | Employment Law |

A company’s employees are its most valuable asset. It is their skill, knowledge, and work that helps the company to achieve profitability. A skilled, experienced team is what often helps one company perform better within the industry than another. Within the labor market, an employee with exceptional skill and value to offer is seen as a core asset, and that person should be paid fairly for their services. That is where a non-poaching agreement could come into play.

A non-poaching agreement aims to make it impossible for an employee who leaves a company to bring other employees with them to their new employer.

What Is a No Poaching or No Poach Agreement?

A no poaching agreement is an agreement between an employee and their employer in which the employee agrees not to encourage other employees to leave the company and go to another employer. This type of restriction must be written and signed by the employee for it to be binding.  

Are No Poach Agreements legal?

A non-poaching agreement is a legal restrictive covenant that an employee may be asked to sign at the start or end of their employment.  If the non-poaching agreement is signed at the end of employment, it may be supported by a severance payment.  If it is signed at the start of employment, it is supported by the employee’s starting work.  Non-poaching agreements are deemed to be valid if properly formed and supported by the necessary consideration because it is well within an employer’s rights to protect their business and its most valuable asset, i.e. its manpower.   

What is the Competition Act in the United States, and How Does It Affect Non Poaching Agreements?

Are non-poaching agreements legal? They may seem to be harmless to some employers, but to many employees, they can limit market growth and competition. They can also limit employees’ ability to push for better wages or working conditions.  This Act precludes two employers to enter into such agreements as same would stifle competition in the market.  However, this Act does not prevent an employer from asking an individual employee to sign a non-poaching/non-solicitation agreement with respect to its existing employees.

Starting June 23, 2023, the Competition Act made it clear that unaffiliated employers – competitive employers – that entered into any type of wage-fixing or mutual no poaching agreement with respect to their employees would be committing a criminal offense for that action.

This falls under Section 45(1.1) of the Competition Act. Employers that engage in these actions could face a wide range of costly outcomes.

The Act covers all types of no poaching agreements, which it labels as any agreement written or otherwise between two or more employees that limits opportunities for the employees of either company to be hired by the other party. This includes activities such as:

  • Limiting communication about job openings for competitors
  • Adopting hiring methods that prevent employees from another competitor from being interviewed
  • Limiting recruitment activities to exclude those who work for other companies

As a New Jersey Employer, What Do I Need to Know About Non Poaching Agreements?

The use of a no poach agreement between employers is illegal, and as an employer in New Jersey, it is critical that you understand why this is and the implications of such an agreement on your company’s ability to tap into other employees. Most New Jersey law limits restraints on trade between businesses, but it also has in place numerous restrictions that aim to protect employees and their right to protect their ability to earn.

There are some limitations that are applied to the typical no poach agreement. For example, a non-solicitation clause can be put into an agreement with employees to restrict a former employee from recruiting current employees to a competitive business. Non-solicitation causes may still be effective for minimizing a range of risks to a business for losing a large number of employees or employees with carefully guarded insights.

The key here is to know how a no poaching agreement could impact the way you do business. Reach out to Hamilton Law Firm to learn more about how we can protect you.