The DOJ Antitrust Division has been threatening at least since 2010 that it may treat “no-poach” or “mutual no-hire” agreements as criminal violations of the antitrust laws. Recent DOJ statements now make it appear that prosecutions could be announced soon. Employers should review their antitrust and employment compliance programs.
DOJ Guidance: “Naked” No-Poach Agreements Are Per Se Illegal
In 2010, in the first of what became known as the “high tech hiring cases,” DOJ’s Antitrust Division sued several high-tech and media companies, alleging that the companies had agreed not to solicit each other’s employees, depressing wages and competition for talent. DOJ settled its civil complaint (see DOJ’s press release) and private civil litigation ensued. In 2016, DOJ and the Federal Trade Commission issued an eleven-page joint document, Antitrust Guidance for Human Resources Professionals, making clear that such “no-poach” or “mutual no-hire” agreements (and similar agreements) would remain a focus of enforcement, and stating that certain agreements would be considered “per se” illegal, meaning automatically prohibited, without any opportunity for the defendants to argue business justifications:
Naked wage-fixing or no-poaching agreements among employers, whether entered into directly or through a third-party intermediary, are per se illegal under the antitrust laws.
(DOJ/FTC Guidance at 3.) DOJ even threatened to prosecute no-poach agreements under the criminal laws, which provide substantial fines and the possibility of felony convictions and jail time for guilty executives.
In the almost eight years since its first no-poach settlements, DOJ has brought no related criminal indictments, though it has been active in criminal prosecutions against other types of antitrust conduct. Now, however, DOJ’s new Antitrust leadership says cases are coming soon.
DOJ Predicts Cases “In The Coming Couple of Months”
It appears that criminal investigations of no-poach conduct are under way, and indictments may be announced in 2018. In September of last year, the then-Acting Assistant Attorney General in charge of the Antitrust Division, Andrew Finch, publicly emphasized DOJ’s intention to prosecute naked no-poach agreements. In January of this year, newly confirmed Antitrust head Assistant Attorney General Makan Delrahim went further, stating at a Washington, DC-area conference that DOJ has opened several “active” investigations and that he has been “shocked” at how much such conduct exists. Delrahim expressed frustration that the no-poach conduct “has not been stopped, and continued [even after] the time when DOJ’s policy was made.” He said that DOJ fully intends to bring criminal prosecutions, and “in the coming couple of months, you will see some announcements” of new cases from DOJ.
On February 16, 2018, at the American Bar Association’s International Cartel Workshop in Paris, Delrahim reiterated that cases are near. He stated that if conduct “ceased promptly” as of the 2016 Guidance, DOJ will treat it as a civil violation, but if the conduct continued or started after the 2016 Guidance, DOJ will prosecute. He again expressed “surprise” at how much conduct DOJ has uncovered, and stated that he has no sympathy for attempts to justify it because, in his view, the illegality of such agreements is “nothing new.”
What Is a Naked Agreement?
In calling out “naked” no-poach agreements, DOJ has pointed to agreements that stand by themselves: agreements that are not part of a larger collaboration that might provide justifications for no-hire clauses, but instead are stand-alone agreements about hiring or non-hiring. Illegal agreements need not be formal contracts, or even in writing; to the contrary, DOJ has a long history of prosecuting handshake deals as criminal violations, if those deals involve typical cartel conduct such as price fixing, bid rigging, and customer allocation. There is every reason to believe that a handshake or exclusively oral no-poach agreement would receive DOJ’s condemnation to the same extent as a written one.
If a no-poach condition merely appears as a clause within a larger agreement that has broader business purposes, the condition is not likely to be per se illegal and may not be illegal at all. For example, if two companies form a joint venture to bring an important new product to market, and, as one of many terms, they agree not to poach each other’s key employees involved in that joint venture, a no-poach term may raise few concerns. But given DOJ’s (and also FTC’s) interest, it would be wise to consult antitrust counsel before proposing any no-poach condition.
What Industries Are Most At Risk?
DOJ has not disclosed what industries it is currently investigating for no-poach violations but there have been indications that DOJ’s focus is on high tech, financial, and pharmaceutical companies. This would be logical: no-poach agreements may have their greatest value in industries with highly talented, uniquely skilled, identifiable, and above all mobile employees. Any industry that depends on so-called “star” employees could be at increased risk. And obviously, industries that feature actual stars — celebrities, whether in entertainment and media or otherwise — should take heed of the competition agencies’ guidance.
Note: DOJ has indicated that Human Resources executives and talent recruiters have been directly involved in previous instances of wrongdoing. If these professionals are tempted to think they can safely decline or ignore antitrust compliance training, they should think again.
How Big Is The Risk, And How To Mitigate It?
Penalties for antitrust violations can be substantial. The Sherman Antitrust Act imposes criminal penalties of up to $100 million for a corporation and $1 million for an individual, along with up to 10 years in prison (with real jail time increasingly common). Also, the maximum fine may be increased to twice the amount the conspirators gained from the illegal acts or twice the money lost by the victims of the crime, if either of those amounts is over $100 million. In follow-on civil cases, private plaintiffs can seek treble damages, and such cases often involve class actions. Note that unlike most antitrust cases, which generally require proof of monopoly power and significant market shares, cases involving per se illegality can be brought against companies with comparatively small market positions.
To mitigate the risk, companies may consider all of the following steps:
- Avoid sharing sensitive employment information with competitors, or discussing with competitors any topic involving poaching, employee compensation, and employee attrition rates.
- Ensure that senior executives, talent recruiters, and Human Resources professionals receive antitrust compliance training, along with more traditional recipients of antitrust training (such as sales teams).
- Run all no-poach and non-competition terms past a qualified antitrust attorney before they are proposed, even orally, to another party. While no-poach terms contained in broader business agreements may be justified, this is not a conclusion that business teams should make on their own.
- If potential wrongdoing is detected, promptly consult with antitrust counsel about next steps. Even if a naked no-poach agreement (or other clear antitrust violation) already exists, the company may have options. For example, DOJ has a Leniency Program for criminal antitrust violations, under which companies that promptly approach DOJ about discovered conduct, and promptly cease that conduct, may be eligible for amnesty or reduced criminal penalties. Time is of the essence in these situations because DOJ encourages a “race to the door” in which the first-in company receives far greater benefits than the company in second place.
- If a company has any suspicion of such conduct, it should investigate immediately — DOJ does not consider management ignorance to be a defense.