"No-Poach" Agreements Spark Legal Contests

Employers across California go to great lengths in terms of both time and money to hire loyal, competent employees. However, it can be a challenge to retain employees, particularly when a competing entity offers attractive benefits to try to get a worker to come work for them.

In some states, employers prevent this by having employees sign non-compete agreements that prohibit them from working for certain companies until a certain amount of time has passed after their employment ends.

Except in a few, very limited, circumstances to be discussed in a separate blog, a non-compete agreement that prevent employees from future gainful employment are void in California. Importantly, however, this ban only applies to non-competes that are designed to remain effective after the termination of employment; a company may - legally and for very legitimate reasons - prohibit its employees from moonlighting during the term of their employment, particularly when the moonlighting it performed for a competitor.

In one of many maneuvers to attempt to jump this hurdle, some companies have so-called "no-poach" agreements across franchises or companies that can serve as a similar means of preventing workers from leaving one company for a competitor.

However, attorneys general in 10 states - including California - are taking issue with these no-poach agreements. According to reports, the AGs have targeted eight fast-food chain restaurants and requested that they provide information on their no-poach agreements. In this industry, an estimated 80 percent of franchisors have no-poach provisions in their franchising agreement. The agreements evidently prohibit one franchise in a chain from hiring an employee from another franchise in the chain.

As the AGs argue, no-poach provisions unfairly restrict an employee's rights; they also make it possible for franchisers to keep wages low and prevent competition. By doing this, they create obstacles for employees looking for better positions or benefits at another location. Further, the AGs note that many employees have no awareness of these agreements between franchisors, creating confusion and complications when an employee seeks out new employment. The franchisors have until next month to provide the requested information.

If you are an employer with questions about no-poach agreements and other types of employment contracts, it can be wise to consult an attorney right away. It is not always easy to understand how the laws treat these types of agreements, and failure to have legal guidance can leave you exposed to lawsuits, loss of workers and other consequences.

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