SW Legal studies in Business

Sale of Subsidiary Could Restrict Hiring of Subsidiary Employees by Selling Parent Company
Description Appeals court affirmed that when a parent company sells a subsidiary to another company, as a term of the sale, it could agree not to recruit away key employees of the subsidiary for a reasonable period of time so as to make the sale more attractive to the buyer. No illegal boycott of the workers in violation of the Sherman Act occurred.
Topic Antitrust
Key Words Boycott; Non-competition Agreement; Rule of Reason
C A S E   S U M M A R Y
Facts AT&T wanted to sell a subsidiary, Paradyne. Since the skills of employees were key to Paradyne, AT&T wanted to give the buyer assurance that AT&T would not hire away Paradyne employees. Paradyne was sold to Texas Pacific Group (TPG) at the same time Lucent and NCR were divested from AT&T. The sale to TPG stated that for eight months after the sale, AT&T, Lucent and NCR would not hire or solicit the services of any Paradyne employee who earned over $50,000 a year. Former Paradyne employees sued AT&T and TPG for an illegal boycott in violation of Section 1 of the Sherman Act for the no-hire agreement. The district court dismissed the suit. The plaintiffs appealed.
Decision Affirmed. The rule of reason applies to the restrictions here, which means the plaintiffs have the burden to show that the challenged acts are unreasonably restrictive of competitive conditions in the relevant market. This agreement was not unreasonable. It was between AT&T and TPG; all other firms involved were subsidiaries of AT&T at the time the deal was structured. The eight month restriction on hiring was not unreasonable as a condition of the sale to make Paradyne more attractive to the buyer.
Citation Eichorn v. AT&T Corp., - F.3d - (2001 WL 410084, 3rd Cir., 2001)

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