Pennsylvania, New Jersey join antitrust suit over no-poach agreements

New Jersey, Pennsylvania and a host of other states joined a federal suit seeking to outlaw contract clauses that forbid businesses from attempting to recruit each others’ workers, provisions the states say violate federal antitrust laws.

The case centers on tax preparation giant Jackson Hewitt and its network of franchised tax preparers’ use of no-poach agreements, which typically bar firms from hiring employees of another, usually related, firm.

In Jackson Hewitt’s case, the agreements subjected any franchise that hired workers away from Jackson Hewitt, any of its affiliates, or another franchise to a recruiting fee equal to 300% of the hired employee’s annual salary, the plaintiffs say.

Jackson Hewitt denied entering into an agreement with that monetary penalty and has denied the broader antitrust allegations. The firm’s attorneys declined to comment on pending litigation.

New Jersey Attorney General Matt Platkin said in a statement that no-poach contracts are “anti-competitive.”

“They unfairly restrict workers’ future job prospects, limit their career mobility, and lower their earning potential. Contrast that dismal picture with a competitive labor market, where companies must compete for workers by offering higher compensation and improved terms and conditions in the workplace,” he said.

In a friend-of-the-court-brief, 18 states and the District of Columbia allege the prohibition is anti-competitive because Jackson Hewitt franchises compete among themselves — and with Jackson Hewitt itself — for tax preparation work, noting the company’s franchise agreements admit as much.

They argue the agreements harm workers by restricting their horizontal mobility. Because some competitors face penalties for hiring workers subject to no-poach agreements, those workers lose out on pay raises they could have won by moving to a separate firm, the states said in their court filing.

The push against no-poach agreements coincides with efforts to do away with noncompete agreements, which impose similar hiring restrictions on workers. Workers subject to a noncompete are typically barred from seeking similar employment elsewhere, sometimes for years. 

The Federal Trade Commission in January proposed a rule that would bar the use of noncompete agreements, though it has not moved to enact the rule since its public comment period ended in April.

Noncompete and no-poach agreements have also drawn the eyes of some New Jersey lawmakers who have sponsored legislation that would significantly curtail the agreements’ scope and reach and entirely bar no-poach agreements for workers making less than the state’s average income.

New Jersey Monitor, where this article first appeared, is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. New Jersey Monitor maintains editorial independence. Contact Editor Terrence McDonald for questions: [email protected]. Follow New Jersey Monitor on Facebook and Twitter.