O’Melveny Team Files Amicus Brief on Behalf of Law and Economics Scholars Concerning Hiring Restrictions that Accompany Legitimate Business Collaborations
November 13, 2023
On behalf a group of law and economics scholars, a team of O’Melveny Antitrust & Competition attorneys recently filed an amicus brief in a significant Second Circuit case concerning hiring restrictions that accompany legitimate business collaborations. The case hinges on the question of whether plaintiffs can adequately plead that an agreement not to hire employees is a per se antitrust violation, even if the agreement is part of a legitimate collaboration between the involved businesses.
This is a developing area of law. Agreements like these have long been understood to be subject to the “rule of reason,” which requires plaintiffs to allege that the defendants have market power and that the challenged conduct had anticompetitive effects. But private plaintiffs, the Department of Justice, and state antitrust enforcement agencies recently have taken the position that these agreements could be per se illegal, depending on the circumstances. Per se treatment is reserved for certain types of agreements that are inherently anticompetitive, like price fixing or market allocation. If plaintiffs adequately allege an agreement that falls into one of these categories, anticompetitive effects are inferred, and plaintiffs would not need to plead market power or anticompetitive effects to survive a motion to dismiss.
The case involves alleged agreements between Saks and several luxury brands, which operate leased boutiques in Saks department stores, not to hire or attempt to hire Saks’s luxury retail employees. Our brief lays out the economic rationale for these agreements—they cure the potential free-rider problem of the brands using their in-store boutiques to poach Saks employees—and identifies other types of collaborations with similar features that have long been subject to the rule of reason.
This case may have implications for many businesses, because hiring restrictions that accompany legitimate business collaborations can arise in many contexts. There have been similar cases in the franchise context, including a recent Seventh Circuit case involving McDonald's. This case may also have implications for dual-distribution arrangements (e.g., a manufacturer sells its products both through independent dealers and also directly to customers) or non-compete agreements that accompany merger agreements.