This Common Recruiting Approach May Mean Jail Time – An Alert

If you’re one of many firms that have used no-poach recruiting agreements, realize that jail time may be in your future. Last month, many were shocked when they learned that, on top of the millions in civil penalties historically levied against firms like Google, Apple, Intel, and Pixar, three Texas healthcare providers (Surgical Care Affiliates) are now facing DOJ charges. 

They were charged for using restrictive no-poach agreements to “collude” by “illegally depriving employees of competitive opportunities.” These criminal charges carry up to 10 years of jail time. The DOJ can now, in addition to civil penalties, criminally charge organizations for merely having a form of no-poach agreement per se (it can be informal, including verbal and text agreements). They also don’t need to prove that the agreement economically harmed specific individuals. Finally, they can levy charges when an organization does not fully cooperate with their investigation. 

Realize That The Largest Negative Impacts Are Organizational And Managerial 

Most executives and recruiting leaders are surprised to learn that the largest proportion of these agreements’ economic damage doesn’t come from these harsh civil and criminal penalties. Instead, these “seemingly harmless” agreements unintentionally create negative impacts that permeate your organization in almost every important business / HR area, including measurable damage to workforce productivity, innovation, diversity, and the strength of your managers and leaders. 

Because these “hidden” economic impacts are so great, the remainder of this article shifts to highlighting the top 10 organizational and management evils that result from a no-poach agreement. These additional negative impacts are broken into three distinct categories.

Category #1 | Negative impacts on productivity and innovation

  • Not being “fought over” will make your complacent employees less productive. No-poach agreements purposely reduce the number of times where external recruiters will be wooing your employees. Unfortunately, fewer recruiter contacts can lead to employee complacency and lower productivity when your employees know they are highly likely to be a recruiting target. The possibility of a better job drives them to constantly build their skills and make themselves more capable and attractive. However, over time, your employees realize that the industry’s most desirable firms can’t even approach them. They may consciously or unconsciously become complacent and less ambitious to the point where many may become less capable, engaged, and productive. 
  • Fewer internal openings will also limit employee improvement and productivity. No-poach agreements restrict external raiding. And without that raiding, there will be fewer internal openings for employee career progression and promotion. Few opportunities to progress and get promoted means your best employees have less ambition to drive the continuous improvement in their skills and capabilities. Over time fewer capabilities and less ambition will initially lead to lower employee productivity. Eventually, slower career growth will result in lower pay, which will either frustrate your employees or cause them to want to leave at a higher rate. Rather than purposely restricting internal openings. HR must develop a process that consciously develops an opportune balance that provides ample internal opportunities for the best to move before they get frustrated. 
  • Fewer external hires will result in inbreeding, which reduces innovation. In the business world, innovation has an extremely high ROI. However, when your organization places restrictions on recruiting from the very best firms in your industry, a larger percentage of your job openings will be filled by your current employees. New hires will mostly come at the entry-level. When you expand the proportion filled internally, you simultaneously limit the number of experienced external hires that your employees can learn from. That will challenge the status quo without the constant challenge of new ideas and best practices that external hires bring. This form of “inbreeding” will eventually cause the overall innovation rate of your team to decrease. 
  • Limiting poaching may weaken your organization’s leadership team.  No-poach agreements limit the number of experienced external hires that your employees can learn from. In many cases, it essentially eliminates the hiring of external managers and leaders from your top competitors. Managers have a much larger impact on business success. Not hiring as many external managers means a lost opportunity to infuse your organization with those who will be critical of the status quo. And that will bring with them new ideas and perspectives, as well as knowledge of best practices, superior products, and different leadership approaches. No poaching agreements unwittingly create a type of forced nepotism at the managerial level.
  • These agreements will create an adverse impact on women and diverse people. There is plenty of data revealing that having a diverse workforce improves business results. The employees who create your products and provide customer service better reflect your diverse customer base and needs. Unfortunately, no-poach agreements limit diversity because you’re not allowed to identify and target the easiest to find diverse individuals in your industry. These diverse individuals are working across the street at your competitors. Unfortunately, many women and diverse individuals are less visible and less active job searchers because of family responsibilities and confidence issues. Their lower visibility makes finding them at firms outside of the protective agreement more difficult. Finally, when found, diverse individuals are less likely to be landed because hiring managers at no-poach companies simply don’t have as much experience recruiting diverse individuals into professional and management level jobs.

Category #2 | Negative impacts on how well you manage

  • Not having to fight to keep employees will weaken a manager’s retention capabilities. No-poach agreements are designed to limit the number of times an external recruiter will bid to poach each employee. Unfortunately, over-protecting your employees from external recruiters have a significant and painful side effect. Because with little external raiding, there will be few times when a manager must literally “fight” to retain a top employee. And not having to fight will weaken your managers because there will be fewer times when they will be forced to improve the “employee experience.”. By taking effective retention actions like praise, recognition, two-way communications, and one-on-one coaching. 

Under a no-poach agreement, employee treatment can mirror what happens in a courting relationship. You are more likely to treat a potential highly desirable partner better when you are forced to fight every day to build/maintain a relationship with them. Unfortunately, the treatment is likely to be far superior to how you treat a committed spouse that you believe that you no longer have to fight for.

  • Not having to recruit as often will weaken the recruiting capabilities of your managers. With no-poach agreements, each manager will face fewer team vacancies. And not having to recruit frequently will weaken the manager’s recruiting skills. While also making them less in touch with the rapidly changing competitive recruiting marketplace. Together these two factors will make your managers less successful when they do have to compete externally with more skilled recruiting managers at other firms. Not having to fight for recruits from top competitors continually will have a similar effect on weakening your managers’ abilities to recruit externally.

Category #3 | Additional negative impacts to consider 

  • These agreements may lower opportunities and the salaries to the point where the entire industry is weakened.  When these agreements become pervasive in an industry, the competition for talent across the industry decreases. And without the active recruiting competition, overall salaries remain low (which is one of the primary goals of these agreements). Unfortunately, over time this lack of pressure will result in industrywide salaries and less competitive benefits. So, to get paid significantly better and experience better opportunities, many of the best will be forced to leave the industry. Over time, this talent loss will weaken the desirability and competitiveness of the entire industry. 
  • The agreement may encourage union activity. Suppose your best employees don’t decide to leave your company because the lack of competition reduces their opportunities and pay. In that case, they may decide to look to unions to improve their situation. No union would tolerate a no-poach agreement between companies. But also because unions have a track record for successfully raising industry-wide pay. 
  • Artificially limiting employee movement may violate your organization’s values and ethics. In my view, before organizations even consider a no-poach agreement, they should examine their corporate values and ethics to determine if this practice runs counter to them. The first ethical issue to address covers “the ownership of employees.” Some executives argue that restricting recruiting is a good thing because it keeps your competitors from “stealing your talent.” But the reality is that any organization does not own employees (that would be similar to slavery), and employees are free to leave at any time for any reason. Also, remember poaching something of value is a common corporate practice on the organization’s sales side. If your organization praises “free markets” on the business side, it would be ethically questionable to purposely restrict the “free talent marketplace” within the business’s HR element. And finally, if your organization values transparency, it would certainly be unethical to keep these agreements secret from your employees and the stockholders (which most do). 

Basic Action Steps To Take

Recruiting leadership should immediately consult with your legal team about any recruiting practice that restricts poaching. Next, HR should undertake an antitrust audit. And as part of that audit, HR should put together a business case that demonstrates to executives and hiring managers the tremendous costs and problems these agreements create. And finally, HR should design and offer antitrust compliance training and create a formal mechanism for reporting any potential concerns.

Final Thoughts

I have personally experienced the freedom restricting covenants that were once more common in high-tech at far too many organizations. And that may still be prevalent among “The Big Four” in healthcare, small businesses, and even not-for-profits. In my experience, if the Pro-Business Trump administration is willing to make employee non-poaching agreements a major focus. You can bet your last money that the pro-labor Biden administration will greatly accelerate that trend. So, the only question that remains is will your organization be ready for that closer scrutiny? 

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About Dr John Sullivan

Dr John Sullivan is an internationally known HR thought-leader from the Silicon Valley who specializes in providing bold and high business impact; strategic Talent Management solutions to large corporations.

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