POACH ME NOT? – The Position of Antitrust Law in India and USA on poaching agreements between companies for employees

On 20th October, 2016, the Federal Trade Commission and the Department of Justice of the Antitrust Division in USA issued guidance for Companies and Human Resource Professionals, relating primarily to wage-fixing and anti-poaching agreements, to enable them to follow practices conducive for the free and fair functioning of the market. The guidelines also express the intention of proceeding with criminal investigations on allegations of agreements between employers to not solicit or hire each others’ employees.

Prior to this guidance, the DOJ has brought forth several successful cases, primarily against hi-tech companies, recognizing agreements preventing ‘cold calling’ as prima facie illegal which cannot seek the justification of resultant procompetitive circumstances. In the case of U.S v. eBay Inc. the judgement prohibited companies from, “attempting to enter into, entering into, maintaining or enforcing any agreement with any other person to in any way refrain from, requesting that any person in any way refrain from, or pressuring any person in any way to refrain from hiring, soliciting, cold calling, recruiting, or otherwise competing for employees of the other person.”[1]

Similarly, in several other cases, such civil enforcement actions[2] were brought forth where both or either of the companies to the agreement agreed to not directly solicit each others’ employees. The DOJ opined that the agreement had the effect of diminishing competition to the disadvantage of employees by preventing access to opportunities. In 2013, the US Federal Trade Commission further observed that a provision in the Music Teachers’ National Association Code of Ethics which prevented soliciting competing music teachers was anti-competitive as it had the effect of detracting from the consumer benefits of competition. However, the difference made by this guidance is the element of criminal enforcement, while in comparison earlier, only money damages or conduct sanctions could be secured.

In the context of India, in the year 2015, IndiGo had been accused of poaching over 60 pilots from Air India and Jet Airways and the Competition Commission of India had been approached by Air India to prevent this ‘predatory recruitment’ of trained pilots. The CCI had rejected the complaint summarily by terming it as an ‘employment issue’ and had gone on to state that there was no restriction on an airline company to hire pilots who worked for other airlines. In this context, the Ministry of Civil Aviation has been contemplating since then to develop a framework for anti-poaching whereby airlines give informal commitment in furtherance of the agreement to not poach staff and pilots of other airlines. However, given the position of Indian law which we shall now evaluate, these are likely to be untenable.

Given that the Competition Act, 2002 is relatively more recent in legal developments, such aspects pertaining to the validity of such agreements were dealt with under S. 27 of the Indian Contract Act, 1872 prior to the Act of 2002. S. 27 of the Act holds that any agreement which restrains an individual from exercising a lawful profession, trade or business is void and a restraint will only be considered reasonable if it does not interfere with public interest and offers fair protection to the parties. In the case of Pepsi Foods Ltd. & Others v. Bharat Coca-Cola Holdings Pvt. Ltd. & Others[3] where the contract contained a negative covenant restraining employees, it was held by the Delhi High Court that such post-termination restraint was violative of S. 27 and thus, void. The Court held that such a restraint would be akin to ‘economic terrorism’ and an injunction could not be sought to create a situation such as “once a Pepsi employee, always a Pepsi employee.” The Court was of the opinion that an employee should have the right and freedom to change employment and seek an improvement in service conditions.

In the case of Desiccant Rotors International Pvt. Ltd. v. Bappaditya Sarkar & Anr.[4] it was observed that these agreements which are entered into by companies to shield themselves from competition are in conflict with the rights of the employees to seek employment of their choice and as the latter affects livelihood, it must prevail.

Under the purview of the Competition Act, 2002 now, S. 3 deals with anti-competitive agreements which are void abinitio, but non-poaching agreements are not mentioned under this section expressly. Thus, as long as anti-poaching agreements follow certain guidelines, they are not in contravention of S. 3- the agreement should not have an adverse effect on competition, should not un-promote competition and should ensure the freedom of trade such that no employee is restricted from working for a competing employer.

Even though not a lot has come from the Competition Authorities in India, not having been faced with a multitude of such cases, such actions have scope under the Act of 2002 as the ambit is wider than the Contract Act, especially in terms of remedies whereby while a contract can only be rendered void under the Contract Act, penalties can be imposed under the Competition Act and in terms of applicability as well, the Competition Act applies to agreements of any kind, which is a broader ambit.

What remains to be seen is whether the Competition Authorities of India continue to follow decisions similar to the slew of cases under the ambit of S. 27 of the Contract Act and as in the airlines summary rejection and whether they develop a framework such as the one in the US in the field of antitrust law.

[1] U.S. v. eBay Inc., No. CV12-58690-PSG (N.D. Cal. Sept. 2, 2014).

[2] U.S. v. eBay Inc., No. CV12-58690-PSG (N.D. Cal. filed Nov. 16, 2012); U.S. v. Lucasfilm Ltd., No. 1:10-CV-02220 (D.D.C. filed Dec. 21, 2010); U.S. v. Adobe Systems, Inc., et al., No. 1:10-CV-01629 (D.D.C. filed Sept. 24, 2010).

[3]  Pepsi Foods Ltd. & Others v. Bharat Coca-Cola Holdings Pvt. Ltd. & Others 81 (1999) DLT 122.

[4]  Desiccant Rotors International Pvt Ltd v Bappaditya Sarkar & Anr., Delhi HC, CS (OS) No. 337/2008 (decided on July 14, 2009).



ABOUT THE AUTHOR

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Currently pursuing her undergraduate degree from the Gujarat National Law University, Gandhinagar, Sanskriti Sanghi possesses a flair for writing and a yearn to learn. Being avidly interested in Antitrust law, Intellectual Property Rights, Children’s Rights and International Relations, she seeks to engage in and discuss multiple disciplines which keep her constantly discovering. She believes in immersing and involving herself in various activities and letting the passion for each of those interests allow her to deliver her best.

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