Opinion: No-poach agreements: A new generation of restrictions

Computerworld - Most states allow companies and their employees to agree that, after the employment relationship ends, the employee will not compete with the employer. These agreements, referred to as "noncompete agreements," have been discussed in detail in two prior Computerworld articles: "Don't sign away your future: Noncompetes done right" and "Beyond the noncompete".

Such agreements place significant post-employment restrictions on what type of work an employee can perform and where the employee can perform that work. Because these agreements provide a bright-line test (either the employee is competing or he's not), little, if any, investigation need be undertaken before a company can ask a court to enforce the agreement. For that reason, noncompete agreements are considered the best available tool for a company to protect its legitimate business interests (primarily, the protection of trade secrets, confidential business information and goodwill).

Even so, because of the impact that these agreements can have on an employee's ability to find gainful employment, many courts are loath to enforce them (and, indeed, California bans them outright). This is more true now, when employees are being laid off at record levels and are lucky enough to find any job -- much less one at a company that does not compete with their prior employer.

This circumstance has left some companies scratching their heads about how to protect themselves from employees who have left to join direct competitors. Enter the no-hire agreement.

Traditionally, no-hire agreements fell into two broad categories: first, an agreement by which a company agrees with another company not to hire the other company's employees; and second, an agreement by which an employee agrees not to hire his former co-workers after he changes jobs. These agreements arise in the context of some ongoing relationship -- either some type of joint venture, consulting agreement or other business arrangements between the companies or an employment relationship.

Recently, however, a third type of no-hire pact, more commonly referred to as a "no-poach agreement," has come into favor. It is an agreement by two unrelated companies to not poach each other's employees. While this can be viewed as a bit of an end run around noncompete agreements, the impact of a no-poach agreement is far less detrimental to the employee. Specifically, unlike a noncompete agreement, which prohibits an employee from working for any competitor, no-hire agreements -- to the extent that they are not part of a larger scheme among multiple companies -- merely bar employees from only one potential employer. From this standpoint, such agreements would appear to be a better alternative to a noncompete from a restricted employee's and a court's standpoint.