Last year, the U.S. Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”) jointly issued an Antitrust Guidance for Human Resource Professionals (the “Guidance”). The Guidance details critical antitrust principles arising in the employment context, which corporate executives, HR professionals, and other managers responsible for recruitment and hiring would be wise to review.
In particular, the Guidance emphasizes that wage-fixing and no-poaching agreements among business competitors violate federal antitrust laws and can result in stiff sanctions, including criminal and civil penalties for businesses as well as the individual employees involved. Similarly, the Guidance cautions that the antitrust laws restrict employers’ ability to share compensation information with competitors.
In recent years, the DOJ and the FTC have brought major antitrust enforcement actions against businesses in connection with alleged no-poaching or wage-fixing agreements. For example, the DOJ has initiated civil enforcement actions against several technology companies for allegedly entering into agreements with one another not to “cold call,” and in some cases not to hire, each other’s employees. Similarly, the FTC has brought enforcement actions against various companies for allegedly agreeing not to compete for employees and conspiring to hold down compensation terms for employees.
In the wake of such enforcement actions, the Guidance outlines the fundamental antitrust principles governing the employment marketplace, focusing principally on no-poaching and wage-fixing agreements, as well as the exchange of compensation information with competitors. While this article does not cover every aspect of the Guidance, most of the key issues it addresses are summarized below:
Rules of a Competitive Employment Marketplace
From an antitrust perspective, companies that compete to hire or retain particular employees are competitors in the employment marketplace, regardless of whether the businesses make similar products or provide the same types of services. Under the antitrust laws, it is unlawful for businesses to agree, whether expressly or implicitly, not to compete with one another in recruiting employees or setting compensation terms. Therefore, corporate executives, human resources professionals and hiring managers must ensure that their interactions with other businesses are not aimed at, and do not result in, any such unlawful agreement.
Violations of the antitrust laws can have severe consequences. Depending on the facts of the case, the DOJ may bring a criminal prosecution against individual employees and/or the companies involved. Both the DOJ and the FTC are authorized to initiate civil enforcement actions for antitrust violations. In addition, an individual employee or other private party injured by an illegal agreement among competing employers may bring a civil lawsuit for treble damages and attorneys’ fees. Particularly in the case of a class action, the potential costs of such a lawsuit may be enormous.
No-Poaching and Wage-Fixing Agreements
Agreements among employers not to solicit or hire each other’s employees (“no-poaching”) or not to compete with one another in salaries or other compensation terms offered to employees (“wage-fixing”) likewise violate the antitrust laws. Again, it does not matter whether the agreement is informal or formal, written or unwritten, explicit or tacit. Evidence of exchanges of information among competitors relating to compensation, recruiting, or similar topics, followed by parallel behavior, may lead to an inference of an unlawful agreement.
As the Guidance notes, unless a no-poaching or wage-fixing agreement is “reasonably necessary to a larger legitimate collaboration” between employers, the agreement is considered “naked” and per se unlawful, regardless of its actual anti-competitive effects. (An example of a “legitimate collaboration” might be a bona fide joint venture, as part of which employers agree not to solicit one another’s employees involved in the venture for a limited period of time.)
The Guidance emphasizes the DOJ’s intention to proceed criminally against wage-fixing and no-poaching agreements. Indeed, the Guidance cautions that a finding of such an unlawful agreement may result in felony criminal charges against the employers and individuals involved.
Exchanges of Compensation Information Among Competitors
The Guidance also cautions employers about sharing information with competitors concerning employee compensation or other terms and conditions of employment. Even if the individuals involved do not explicitly agree to fix terms of employment, exchanging such information without a legitimate purpose can serve as evidence of an implicit illegal agreement. Additionally, even absent such an agreement, the exchange of compensation data or other sensitive information among competitors may result in civil antitrust liability if the exchange has, or is likely to have, an anticompetitive effect.
The Guidance notes that, in certain circumstances, business competitors may share compensation data or similar information with one another without violating the antitrust laws. For example, an exchange of compensation information may be lawful if it is carried out in connection with a legitimate merger or acquisition proposal and appropriate precautions are taken to minimize potential anti-competitive effects, such as limiting the information-sharing to a small number of key decision-makers.
Both the DOJ and the FTC offer review processes under which employers may request advisory opinions as to how the agencies would view potential joint ventures or other collaborations among competitors involving the sharing of compensation data or similar information. Seeking such advance guidance may enable companies to avoid potential antitrust enforcement investigations and lawsuits.
Reporting Potential Violations
Finally, the Guidance encourages employees who have information about possible employment-related antitrust violations to report such conduct to the DOJ or the FTC. In order to incentivize such reporting, the DOJ offers a leniency program, under which companies and individuals can avoid criminal penalties by being the first to confess participation in a criminal antitrust violation, fully cooperating with the DOJ’s investigation, and meeting other specified conditions.
In response to the Guidance, there are a number of steps we suggest employers take.
Foremost, employers would be wise to have their corporate executives, HR professionals and other hiring managers review the Guidance carefully, ideally as part of broader antitrust training regularly provided to all relevant personnel.
In consultation with legal counsel, employers should critically review and revise, as needed, their policies, practices and agreements relating to the sharing of employee compensation information with competitors and other third parties, in order to ensure compliance with the antitrust laws.
Finally, an employer should immediately notify counsel if it discovers evidence of an unlawful agreement or improper information-sharing mechanism involving a business competitor, in order to determine the appropriate steps to take.