Even in the absence of an agreement to fix compensation, simply exchanging competitively sensitive information could serve as evidence of an implicit illegal agreement.
On October 20, the Department of Justice (DOJ) and the Federal Trade Commission (FTC) released a report providing guidance on how the antitrust laws are applied to job markets (HR Guidelines.1 Most newsworthy is that the DOJ announced its intention, going forward, to criminally prosecute companies and individuals entering into naked no-poaching or wage-fixing agreements. Although much of the guidance is not new, it is a user-friendly tool intended for use by human resources professionals.
The foundation of the HR Guidelines is that firms that compete to hire or retain employees are competitors in the employment marketplace, regardless of whether those firms make the same products or compete to provide the same services. Accordingly, the same antitrust principles apply, and it is “unlawful for competitors [in the job marketplace] to expressly or implicitly agree not to compete with one another, even if they are motivated by a desire to reduce costs.” The new guidance therefore counsels human resources professionals and those making hiring decisions and policies to take care not to communicate a company’s hiring terms or policies to other companies competing to hire the same types of employees.
In addition to the HR Guidelines, the FTC and the DOJ have also issued a set of “Red Flags for Employment Practices,” which list what types of activities should stand out to managers and human resources professionals as potentially illegal. These red flags include: (1) agreeing with another company on terms of compensation; (2) entering into no-poaching agreements; (3) participating in meetings where sharing employment information is discussed; (4) discussing a range or level of salary or other compensation terms with colleagues at other firms; and (5) receiving documents that contain another company’s internal employee compensation data.
Naked Wage-Fixing and No-Poaching Agreements
In recent years, the DOJ brought actions against companies that entered into no-poaching agreements with competitors.2 Although these past cases were all civil actions, the HR Guidelines makes clear that “the DOJ intends to proceed criminally against naked wage-fixing or no-poaching agreements” and will bring “felony charges against the culpable participants in the agreement, including both individuals and companies.”
Non-Solicitation in Connection With Collaborations or Joint Ventures
No-poaching and wage agreements may be lawful and not “naked” when they are “reasonably necessary to a larger legitimate collaboration between the employers.” Although the HR Guidelines do not provide advice on how to ensure employee-related restraints in joint ventures or competitor collaborations are lawful, the agencies have, in the past, issued such guidance.3 To survive antitrust scrutiny, employment and compensation restraints should be necessary to achieve some procompetitive benefit of the collaboration. Further, the restraints should be narrowly tailored to the scope and timeframe of the collaboration.
Sharing of Sensitive Compensation Information
The HR Guidelines also make clear that sharing wage and benefits information with job marketplace competitors can expose a company or individual to antitrust liability. This is because, even in the absence of an agreement to fix compensation, simply exchanging competitively sensitive information could serve as evidence of an implicit illegal agreement. Sharing information, without more, will not result in automatic liability and should not result in criminal prosecution, but it could result in civil liability when the sharing has had or is likely to have anticompetitive effects.
Sharing information on wages can be particularly problematic in industries with few employers. In those markets, evidence of regular exchanges of current wage data can establish an antitrust violation because these exchanges can decrease competition. For example, the DOJ sued a society of hospital HR professionals for conspiring to exchange nonpublic current and future wage information for registered nurses. According to the DOJ, the information exchange caused the hospitals to match each other’s wages and maintain those wages at artificially low rates.
Although information exchanges can be risky in certain instances, the DOJ and the FTC also recognize that there are valid reasons for sharing information. As a result of the increasing popularity of benchmarking programs, the agencies announced an antitrust “safety zone” that shields such programs from enforcement actions so long as they meet the following requirements:4
- An independent third party manages the program.
- Information provided by survey participants is based on data at least three months old.
- There are at least five providers reporting data for each statistic, no individual provider’s data represents more than 25 percent of any particular statistic, and the disseminated information is sufficiently aggregated to prevent parties from identifying the prices charged by an particular firm.
Companies have also frequently subjected their information exchanges to the DOJ Business Review Letter process to shield legitimate and efficiency-enhancing benchmarking exercises.
Proposed Acquisition Due Diligence
Similarly, the HR Guidelines acknowledge that some disclosure of compensation information is lawful in connection with a potential merger or acquisition, if appropriate precautions are taken. Although the HR Guidelines are silent as to what precautions are appropriate, generally, parties may engage in due diligence information exchanges when:
- Such information is reasonably necessary to determine valuation.
- Disclosure is governed by a confidentiality or nondisclosure agreement that restricts use of the information to due diligence purposes.
- Access is limited to only those individuals who need the information to assess the transaction.
Even if specific employee data are not required for valuation, detailed compensation and benefit information may be needed to evaluate employee retention strategy. The best practice here would be to only disclose such information if a definitive agreement has been signed and the transaction seems likely.