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Second Circuit Finds No-Hire Agreements Were Not Unlawful

May 14, 2025

By: Stephen B. Stern

     In Giordano v. Saks & Company, LLC, 23-600-cv, 2025 U.S. App. LEXIS 5871 (2d Cir. Mar. 13, 2025), the United States Court of Appeals for the Second Circuit affirmed the decision of a district court that dismissed a complaint claiming that no-hire agreements between companies were not anticompetitive in violation of the Sherman Act.

     In Giordano, multiple plaintiffs filed a putative class action complaint against Saks & Company, LLC (“Saks”), other Saks entities, and various other defendants (the other defendants were called the “Brand Defendants”), alleging that the Saks defendants and Brand Defendants violated Section 1 of the Sherman Act, 15 U.S.C. § 1, by entering into no-hire agreements pursuant to which the Brand Defendants would not hire certain classifications of employees (luxury retail employees) employed by Saks during a six month period prior to the hiring without the consent of managers from both companies.  The plaintiffs alleged that these no-hire agreements restrained competition by suppressing wages and limiting professional mobility of certain types of employees.  The defendants filed a motion to dismiss, which the district court granted, and the plaintiffs appealed.

     The Second Circuit started its analysis by reciting that Section 1 of the Sherman Act prohibits any “contract, combination . . . or conspiracy, in restraint of trade or commerce among the several States” and that the United States Supreme Court has established a “rule of reason” analysis that requires antitrust plaintiffs to demonstrate “a particular contract or combination is in fact unreasonable and anticompetitive before it will be found unlawful.”  “The rule of reason requires courts to conduct a fact-specific assessment of market power and market structure to assess the restraint’s actual effect on competition.”

     Although the Supreme Court has established the rule of reason analysis, the Second Circuit noted that certain agreements “have such predictable and pernicious anticompetitive effect, and such limited potential for procompetitive benefit, that they are deemed unlawful per se.”  “Per se unreasonable restraints of trade are deemed ‘illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their abuse.’”  “Per se treatment is appropriate once experience with a particular kind of restraint enables the [c]ourt to predict with confidence that the rule of reason will condemn it.”

     The plaintiffs argued that the no-hire agreements at issue were per se unlawful because they established a horizontal market allocation that divided luxury retail employees among luxury department stores and brands.  The Second Circuit rejected the plaintiffs’ arguments for two reasons.

     First, the appellate court found that the complaint did not adequately allege the no-hire agreements at issue constituted horizontal price-fixing agreements; rather, the alleged restraint was more vertical in nature.  In this regard, the court noted that the complaint alleged that the Brand Defendants sell their goods and apparel through department stores, concessions, and standalone boutiques, while the Saks defendants sought to maintain a “luxury shopping experience for its department store customers, launching Brand Defendants’ concessions at their Saks stores, selling the Brand Defendants’ goods in Saks stores at which the Brand Defendants do not have concessions, and by selling other, competing luxury brands.”  The luxury retail employees are part of the Saks defendants’ model in that they are expected to be knowledgeable about particular products each defendant sells and/or manufactures.  Moreover, the luxury retail employees may be “assigned” to a specific Brand Defendant’s in-store boutique or concession, in which case they are expected to develop luxury goods product knowledge that helps the Brand Defendants promote and sell their products.  The Second Circuit found that this vertical arrangement between the Saks defendant retailers and the Brand Defendants as suppliers does not automatically trigger per se review, even though the Saks defendants and the Brand Defendants also compete horizontally.

     Second, the Second Circuit found that “courts do not have ‘considerable experience’ with this type of arrangement, in which companies whose goods are distributed in a department store and who rent floor space from that store agree not to hire current or recently departed employees of the department store who have been trained by the department store to sell the companies’ goods.”  

     For these reasons, the court found a per se review was not warranted and it would conduct a rule of reason analysis.  The court started its analysis by noting that the plaintiffs bore the burden of showing the challenged conduct had an actual adverse effect on competition as a whole or in the relevant market.  With this in mind, to survive a motion to dismiss, the court noted that the plaintiffs had to “allege not only cognizable harm to [themselves], but an adverse effect on competition market-wide.”  The court explained that such harm can be demonstrated through direct or indirect evidence.  Examples of direct evidence include reduced output, increased prices, or decreased quality in the relevant market, while examples of indirect evidence include “proof of market power plus some evidence that the challenged restraint harms competition.”  The court further noted that demonstrating that a defendant’s actions “prevent a plaintiff from competing in a market is not enough, standing alone.”

     The plaintiffs argued that the Saks defendants are part of a retail conglomerate that employs approximately 40,000 employees worldwide, with thousands of luxury retail employees employed in the United States, making the relevant market the national market for luxury retail employees.  The court, however, found that the amended complaint failed to plausibly allege anti-competitive effects on the national luxury retail employee market.  Rather, according to the appellate court, the amended complaint simply alleged in a conclusory manner that the plaintiffs’ wages were suppressed and their mobility decreased, which spread throughout the luxury retail employee market.  The court noted that there were no specific allegations of market-wide suppression in wages or mobility.  The absence of such allegations was even more notable in light of the fact that the luxury retail employee market included employees of numerous brands other than those sold by the Saks defendants and the Brand Defendants and there were no allegations concerning those other brands or employees.  The court further found that the amended complaint did not even allege sufficient facts to support an inference that the alleged no-hire agreements inflicted substantial harm on the Saks employees.  In this regard, if there was substantial harm to the Saks employees, presumably the number of foreclosed employment opportunities in relation to the number that remained open should be high, but the amended complaint included no such discussion of the foreclosed opportunities.  “Without allegations of facts or even approximations with respect to both sides of the ratio – or some other basis for inferences as to the substantiality of the injury – the amended complaint has failed to satisfy the requirements” to survive a motion to dismiss.

     The court’s decision in Giordano is significant because it gives guidance on how to analyze the viability of a no-hire agreement case.  In this regard, the court’s decision in Giordano illustrates certain effects on markets that courts look for when analyzing such agreements and it also helps remind companies of the risks associated with defending against such claims if they were to enter into such agreements.   Meanwhile, the court’s decision also guides employees trying to bring such claims and the need to be aware of the types of harm that must be alleged to proceed with such a case.