There are 2 major defense suppliers here locally. They are billion dollar corporations. One of the company's is newer to town and is building up it's work force. Together they do have one joint program for the Department of Defense. There is an agreement between them not to hire each others employees. Is this legal or does it violate labor laws limiting workers the right to apply for employment and be hired anywhere? Where can I research more about this and what could I do about it without spending a lot of money? thank you in advance for your time.

It's legal and it happens all the time. Just because there is one employer in one location that won't hire someone doesn't mean their employment options are unfairly limited.