A New York federal judge has dismissed an anti-competition lawsuit that accused Saks Fifth Avenue, and the American arms of Louis Vuitton, Loro Piana, Gucci, Prada, and Brunello Cucinelli of engaging in a “no poaching” scheme to control the wages and certain job conditions of luxury retail employees (“LREs”). Despite tossing out the bulk of the proposed class action case last month, Judge Margo Brodie of the U.S. District Court for the Eastern District of New York gave Anja Beachum, one of the named plaintiffs, the opportunity to amend her complaint (in light of significant developments in the jurisprudence regarding no poaching and no-hire agreements). When Beachum failed to lodge a new complaint or an extension, the court brought the case to a close.
The dismissal comes just over three years after Beachum, Susan Giordano, Angelene Hayes, and Ying-Liang Wang filed suit, claiming that Saks, and Louis Vuitton, Loro Piana, Gucci, Prada, and Brunello Cucinelli “agreed not to compete for employees … by not hiring LREs who have worked at Saks within six months of such employment unless managers of both companies agreed to an exception.” In a “properly functioning market, the defendants would compete for LREs,” the plaintiffs contend, accusing them of running afoul of Section 1 of the Sherman Act, which prohibits agreements that act as an “unreasonable restraint of trade.”
In an order last month, Judge Margo Brodie granted the defendants’ motion to dismiss for the most part, finding that Giordano, Hayes, and Wang’s claim was barred by the statute of limitations. As for Beachum, the court determined that she sufficiently pled the existence of a plausible anticompetitive conspiracy (the first prong of a Section 1 claim), with the court citing allegations in the amended complaint that “the director of human resources at Saks confirmed the existence of the no-hire agreements between Saks and each of the luxury brands and specified the key terms of the agreements.” At the same time, store managers for a number of the brands confirmed the no-hire agreements.
Beachum fell short on prong two, however, which requires a showing that that the scheme “constituted an unreasonable restraint of trade either per se or under the rule of reason.” According to the court, she failed to allege sufficient facts to support a direct adverse effect on competition and also “to show that [the defendants] held market power in the relevant market, thus failing to allege indirect ‘adverse effect on competition as a whole in the relevant market.’”
The plaintiffs also alleged that their job mobility was restricted due to the no-hire agreements, but the court found that this “does not lead to the conclusion that the no-hire agreements created ‘an adverse effect on competition market-wide.’” Beyond that, the court determined that the plaintiffs “offer no facts to support the conclusory assertion that ‘suppressing LRE compensation at a large employer like Saks removes significant competitive pressure” for the brands when it comes to LRE compensation.
The court also asserted in a footnote that without explaining how the no-hire agreements prevented the plaintiffs from finding employment with other luxury retailers other than the defendants, “they cannot not show an ‘adverse effect on competition market-wide.’” (In an earlier round, the defendants argued that with a long list of other luxury brands in the market, including Armani, Bottega Veneta, Burberry, Cartier, Chanel, D&G, and Hermès, among others, “it is thus unsurprising that the plaintiffs fail ‘to state any allegation of the defendants’ individual or combined share of the purported labor market’ and instead rely on ‘the vague and inert conclusion that ‘the defendants are the dominant employers of LREs in the U.S.’” The judge agreed.)
While the court tossed out Giordano, Hayes, and Wang’s claims, she granted Beachum leave to amend her complaint, as “during the pendency of this motion there have been significant developments in the jurisprudence regarding no-poach and no-hire agreements, including the Supreme Court’s decision in NCAA v. Alston, which clarified that courts should limit their application of the per se and ‘quick look’ standards.” Judge Brodie stated that in her second amended complaint, Beachum “must allege facts sufficient to permit the court to assess the challenged no-hire agreement’s ‘actual effect on competition’ under the rule of reason standard.”
Beachum failed to meet the 30-day deadline for submitting an amended complaint, and thus, the court entered a final judgment and closed this action.
THE BIGGER PICTURE: No-poach/no-hire agreements have been under increased scrutiny over the past several years. Specifically, these types of agreements have been a topic of interest since 2016 when the Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”) issued guidance, entitled, “Antitrust Guidance to HR Professionals,” in which they warned that future antitrust enforcement would treat “no-poach” agreements and wage fixing as criminal violations of antitrust law. The Biden Administration affirmed its plans on this front, stating in the July 2021 Executive Order on “Promoting Competition in the American Economy” fact sheet that the FTC and DOJ should “strengthen antitrust guidance to prevent employers from collaborating to suppress wages or reduce benefits by sharing wage and benefit information with one another.”
While the DOJ was prosecuting cases over a handful of wage-fixing and no-poaching agreements as of last year with mixed results, Hunton Andrews Kurth LLP attorneys previously noted that enforcement is not limited to government actions against employers, “The increased attention on the issue has led to private litigation in industries, such as franchises and higher education” – and fashion, too.
Despite at least one loss last year in U.S. v. DaVita Inc. and Kent Thiry, the DOJ is not expected to back down. “Going forward, companies should not expect the DOJ’s interest in criminally prosecuting no-poach and wage-fixing agreements to substantially diminish,” Cooley stated in an alert this past spring, asserting that “there are other cases pending, [and] it is possible these setbacks may push the DOJ to rely more heavily on civil prosecutions, rather than criminal.” Either way, it encouraged companies and employees to “continue to avoid conduct that may raise red flags and should consider implementing a robust antitrust compliance policy, including antitrust training for employees, and engaging antitrust counsel to review their current non-solicitation provisions and non-compete clauses.”
The case is Giordano et al. v. Saks Incorporated et al., 1:20-cv-00833 (EDNY).
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