On October 20, 2016, the Federal Trade Commission (“FTC”) and the Antitrust Division of the Department of Justice (“DOJ,” collectively the “Agencies”) issued guidance for human resource professionals involved in hiring and compensation decisions (the “HR Antitrust Guidance”). Hiring and compensation decisions can intersect with, and potentially violate, the antitrust laws. The HR Antitrust Guidance addresses three areas of potential violations of the antitrust laws particularly relevant to “competing employers”: (1) wage-fixing agreements, which are agreements between companies to fix salaries or other terms of compensation and benefits at a specific level or within a specific range; (2) no-poaching agreements, which are agreements between companies to refrain from soliciting or hiring the employees of the other; and (3) the exchange of competitively sensitive information about employees’ terms and conditions of employment. The Agencies define “competing employers” broadly to include companies “that compete to hire or retain employees . . . regardless of whether the firms make the same products or compete to provide the same services.”
The HR Antitrust Guidance provides that in situations where companies that compete for talent agree not to, absent a legitimate business purpose, hire each other’s employees or to otherwise fix salaries and/or benefits terms, the agreement is per se illegal, without regard to whether it has any anticompetitive effects. The DOJ, most notably in 2010 and 2012, prosecuted several such alleged “naked” no poaching agreement cases, on antitrust grounds, against several high-profile media and technology companies.
The HR Antitrust Guidance is largely silent, however, on the types of agreements between employers that may be permissible under the antitrust laws. It suggests that an agreement that is related to or “reasonably necessary to a larger legitimate collaboration between the employers,” may be lawful. While the Agencies do not define what it means to be related to or “reasonably necessary to a larger legitimate collaboration between the employers,” they cite joint ventures (such as shared use of facilities) as an example of one such agreement that is not illegal per se.
Another example of a situation in which no-poaching agreements between companies often arises is in the merger and acquisition contest, e.g., where (a) a seller agrees not to hire employees from the sold entity for a certain period of time after the sale, or (b) a potential buyer is allowed to review confidential information identifying the seller’s key employees and information regarding those employees. Although not directly addressed in the HR Antitrust Guidance, such agreements, like those in the joint venture context, likely would not be deemed per se illegal where reasonably limited as they arise out of a legitimate collaboration between the companies and serve legitimate business purposes (e.g., to preserve workforce stability during and/or for a reasonable period following the collaboration). The HR Antitrust Guidance leaves unaddressed the issue of no-poaching agreements in the context of settling non-compete, trade secret and employee raiding disputes, where it is not unusual for the new employer to agree not to solicit or hire the old employer’s employees for a certain period of time. It also bears noting that the Agencies expressly acknowledge that the HR Antitrust Guidance does not address the legality of contracts between an employer and one or more employees, such as non-compete or non-solicitation agreements.
The HR Antirust Guidance indicates that, in addition to the Agencies seeking to impose civil liability against companies that violate the antitrust laws through their HR decisions, the DOJ will “criminally investigate naked no-poaching or wage-fixing agreements that are unrelated or unnecessary to a larger legitimate collaboration between the employers.” This may subject the companies and culpable individuals to criminal, felony charges. In addition, the Antitrust Guidance points out that where an employee or another party is injured by an illegal agreement between competing employers, that party could bring a civil action seeking treble damages against the companies.
The Agencies also set out expectations for companies to comply with the antitrust laws with regard to the exchange of competitively sensitive employment information, which may occur in trade association or mergers/acquisitions settings. The HR Antitrust Guidance provides that while not all agreements to exchange competitively sensitive information about employees’ terms and conditions of employment are illegal, they run afoul of the antitrust laws when they have, or are likely to have, anticompetitive effects. It sets out a specific example of how to design and carry out information exchanges in accordance with antitrust laws, and expressly provides that the exchange of competitively sensitive employment information is lawful in connection with a merger or acquisition if “appropriate precautions are taken.” There is no explanation of what precautions would be appropriate. It does, however, refer employers to more detailed guidance that the Agencies have previously provided to the healthcare industry regarding permissible exchanges of employment information.
Finally, the Agencies, in addition to the HR Antirust Guidance, issued a two-page “Antitrust Red Flags for Employment Practices” (“HR Antitrust Red Flags”) reference card that is meant to assist HR professionals in identifying common scenarios where antitrust issues may arise.
The HR Antitrust Guidance and HR Antitrust Red Flags reference card make clear that the Agencies expect HR professionals to comply with the antitrust laws when dealing with employment decisions. This also means that in-house legal departments need to expand their antirust risk management and compliance strategy to include HR professionals in addition to more traditional personnel such as sales teams and executives. Accordingly, companies may need to revise their current antitrust compliance strategies with respect to training, monitoring and auditing to ensure compliance with the new antitrust guidance.