Dive Brief:
- Sales associates for luxury retailer Saks & Co. failed to plausibly allege that “no-hire” agreements Saks had with certain high-end brands sold in its stores violated federal antitrust laws, the 2nd Circuit U.S. Court of Appeals held March 13 (Giordano v. Saks & Co. LLC).
- Under the agreements, Loro Piana and the U.S. affiliates of Louis Vuitton, Gucci, Prada and Brunello Cucinelli allegedly agreed not to hire “luxury retail employees” who work or worked for Saks within the previous six months unless managers from both companies approved, according to court documents.
- The sales associates filed a class action lawsuit, alleging the agreements violated Section 1 of the Sherman Act by suppressing employee wages and limiting their professional mobility. A federal district court dismissed the lawsuit, and the 2nd Circuit upheld the dismissal.
Dive Insight:
Federal antitrust laws — the Sherman Act, Clayton Act and Federal Trade Commissions Act — “protect competition for labor, just as they protect competition for goods and services that companies provide,” the U.S. Department of Justice’s Antitrust Division and the Federal Trade Commission explained in a January guidance on business activities affecting workers.
Businesses that compete with each other may be violating these laws if they enter into agreements “not to recruit, solicit, or hire workers or to fix wages or terms of employment,” according to the guidance.
“No-hire” or “no-poach” agreements refer to agreements that affect employee attempts to get other jobs, the guidance explained. These include agreements “between two competitors not to try to hire or solicit each other’s employees” and may sometimes require (as the Saks agreements allegedly do) one company to require permission from the other company before trying to hire an employee, the guidance said.
In the Saks case, the plaintiffs argued the no-hire agreements affecting them restrained competition in the nationwide market of luxury retail employees. The issue came down to whether the agreements were “horizontal” or “vertical” restraints, the 2nd Circuit pointed out.
The court explained the difference: Horizontal restraints include agreements among competitors to fix prices or divide markets and are per se unlawful, it said.
By contrast, agreements between a manufacturer or supplier and a distributor or retailer are considered vertical arrangements, the court added.
Vertical agreements are illegal only if the plaintiff shows the agreement “has had an actual adverse effect on competition as a whole in the relevant market,” the 2nd Circuit said. It’s not enough for a plaintiff to prove they’ve been harmed as an individual, the court emphasized.
If the Saks plaintiffs had alleged that Saks and the brand defendants actually formed an agreement to fix salaries in a given market, this would probably amount to a horizontal price-fixing arrangement, and the per se rule would likely apply, the appeals panel noted.
But the complaint described a vertical arrangement instead, the court said. That is, according to the allegations, Saks, as the retailer, sells merchandise supplied by the brand companies, and the plaintiffs, luxury sales employees for Saks, sold this merchandise, the 2nd Circuit explained.
The district court properly dismissed the complaint because it contained no specific allegations showing how the no-hire agreements suppressed competition or limited the employment opportunities from all businesses nationwide employing — the labor market the complaint sought to include, the appeals panel held.
“Plaintiffs cannot deny (and in fact tacitly acknowledge) that there are numerous luxury brands and department stores participating in the nationwide [luxury retail employee] market other than Saks and the five specific brands named as defendants,” the 2nd Circuit said.
But in an example of the FTC cracking down on no-hire agreements, in December 2024, the agency ordered a building services contractor in New York to stop enforcing a no-hire agreement it had with residential building owners.
The contractor allegedly included a no-hire agreement in customer service agreements with residential building owners in New York and New Jersey that prohibited the building owners from hiring its employees — including custodians and maintenance technicians — even after the contract ended.
In a statement, the FTC explained that the contractor was restricting building owners and competitors from hiring workers, forcing low-wage employees to accept unfair employment terms that restrained job mobility and wage growth.
