On March 13, 2025, the United States Court of Appeals for the Second Circuit affirmed the dismissal of a putative class action asserting claims under Section 1 of the Sherman Act against a department store chain (the “Company”) and certain luxury brands (the “Brands”). Giordano v. Saks & Co. LLC, No. 23-600-CV, 2025 WL 799270 (2d Cir. Mar. 13, 2025). Plaintiffs alleged that the Company and the Brands entered into no-hire agreements that restrained competition in an alleged nationwide luxury retail employee market. The Court affirmed the dismissal of the complaint by the United States District Court for the Eastern District of New York, holding in a summary order that the workers had not plausibly alleged that a national market for luxury retail employees was harmed by any agreements between the Company and the Brands.
In the initial complaint, plaintiffs alleged that Brands agreed with the Company that they would not hire luxury retail employees who work for the Company or who were employed by the Company within the previous six months, unless managers from both companies approved the hire. Plaintiffs alleged that the no-hire agreements violate Section 1 of the Sherman Act, which prohibits agreements or conspiracies that unreasonably restrain trade, by suppressing wages and limiting the professional mobility of luxury retail employees in an alleged nationwide market.
Defendants moved to dismiss the complaint for failure to state a claim, arguing that the no-hire agreements are not per se unlawful, but rather subject to a rule of reason analysis. Under the rule of reason, plaintiffs are required to show that the agreements have an actual anticompetitive effect on competition as a whole in the relevant market. Defendants argued that plaintiffs failed to meet their burden under the rule of reason, because plaintiffs failed to demonstrate anticompetitive effects in the market alleged.
The district court dismissed the complaint for failure to state an antitrust claim. First, the district court found that the no-hire agreements were not per se illegal. Rather, the district court held that the no-hire agreements between the Company and the Brands that supply merchandise to be sold at Company stores were primarily vertical, not horizontal, in nature and thus had to be analyzed under the rule of reason. Under the rule of reason, plaintiffs must demonstrate that alleged anticompetitive conduct has an adverse effect on competition in the relevant market. Next, the district court concluded that plaintiffs failed to adequately allege anticompetitive effects in the relevant market. Plaintiffs had alleged a nationwide market of either (i) all “luxury retail employees” or (ii) all Company employees. Plaintiffs claimed that the no-hire agreements depressed wages and limited worker mobility in both markets. However, the district court found that plaintiffs’ allegations were insufficient to show anticompetitive effects because plaintiffs failed to consider the availability of employment by other luxury retailers in both of those markets.
On appeal, plaintiffs argued that the no-hire agreements are per se unlawful because they amount to a horizontal market allocation, dividing luxury retail employees among luxury department stores and brands. Plaintiffs also argued that they sufficiently alleged market-wide harm by showing that the no-hire agreements spread through the market and reduced the bargaining power and mobility of luxury retail employees.
The Second Circuit held that the no-hire agreements were not per se unlawful, but rather subject to the rule of reason analysis. The Court reasoned that the no-hire agreements are primarily vertical, as they concern the relationship between Company as a retailer and the Brands as suppliers. The Court also held that plaintiffs failed to plausibly allege market-wide harm, as they did not provide any specific allegations regarding the suppression of compensation or mobility among luxury retail employees nationwide, or the ratio of employment opportunities foreclosed by the agreements to those that remain open.
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