Vertical Relationships, Horizontal Effects? The Evolving Debate on Vertical Labor-Market Restraints

Cartel & Joint Conduct Review, Spring 2020

“Naked” labor-market restraints that are not ancillary to collaborations or joint ventures between horizontal competitors are considered per se illegal. However, there is a growing debate over the appropriate treatment of labor-market restraints between parties with vertical relationships, such as no-poach clauses in franchise agreements and non-compete agreements between employers and employees. An article from Managing Principals Samuel Weglein and Jee-Yeon Lehmann and Vice President Nick Dadson, published in the Cartel & Joint Conduct Review, examines the nature of these vertical labor-market restraints from an economic perspective and factors impacting the legal standard for their evaluation.

Drawing on economic literature on franchising and recent court decisions, the authors explore key questions that are relevant to franchise no-poach provisions: (1) whether and to what extent franchisors and franchisees constitute a single economic entity, and (2) whether there are salient procompetitive effects within a franchise. The article then examines non-compete agreements and provides insight into why these agreements, which have rarely been the subject of antitrust litigation, have drawn increasing antitrust scrutiny.

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Dadson N, Lehmann J, Weglein S