Delivering on its recent pronouncements to make antitrust scrutiny in the employment area an enforcement priority, the U.S. Department of Justice Antitrust Division (“DOJ”) announced that it has reached a settlement with two of the world’s largest rail equipment suppliers to resolve allegations that the companies maintained long-standing agreements not to compete for employees.
The DOJ’s settlement is with German company Knorr-Bremse AG (“Knorr”) and Delaware corporation Westinghouse Air Brake Technologies Corporation (“Wabtec”). Both companies have numerous subsidiaries, including in the United States. Knorr, Wabtec and their related entities are worldwide leaders in the development, manufacture and sale of rail equipment and services. In November 2016, Wabtec acquired French company Faiveley, which, before the acquisition, had been the third-largest rail equipment supplier behind Wabtec and Knorr.1 (The no-poach agreements purportedly were uncovered while the DOJ was investigating the Wabtec-Faiveley merger, announced in July 2015.) Faiveley also had subsidiaries worldwide, including several in the United States.2 According to the Complaint, Knorr and Wabtec (now including Faiveley) compete with one another as the top rail equipment suppliers and also compete with one another and with other firms in the rail industry to “attract, hire, and retain skilled employees.”3 Employees with rail experience are in high demand and low supply, with job vacancies in critical positions often remaining open for months while employers in the rail industry search for applicants with the requisite skills, training and experience.
The Complaint alleges that from at least 2009, Wabtec, Knorr and Faiveley (until its acquisition by Wabtec) entered into agreements, commitments and promises not to solicit or hire one another’s employees. These arrangements and understandings primarily affected recruiting efforts, including in the United States, for project management, engineering, sales, and corporate officer employment candidates.4 The companies’ most senior executives entered into the no-poach agreements, which were managed through direct communications among the companies’ top personnel. The DOJ’s Complaint cites to multiple written communications between high-level personnel at all three companies memorializing and, in some cases, policing the agreements.
The companies’ internal and external recruiters implemented the agreements: for example, outside recruiters were instructed not to solicit employees from the other companies.5 Internal human resource professionals also were informed of the no-poach agreements and instructed not to consider applicants from the other company.6
Per the Complaint, the unlawful agreements continued until July 2015, when Wabtec announced its intention to acquire Faiveley. Knorr personnel then directed the Knorr’s recruiters to “raid” Faiveley’s talent pool.7
As we have reported previously, in October 2016, the DOJ and Federal Trade Commission (“FTC”) jointly issued “Antitrust Guidance for Human Resource Professionals,” which made clear that “mutual no hire” and similar agreements were an area of enforcement focus and could be considered “per se” illegal under the nation’s antitrust laws. The joint guidance emphasized that, going forward, such conduct would be subject to criminal prosecution. (Previously, the antitrust agencies had pursued civil enforcement actions in this arena.)
Announcements and statements by DOJ personnel since October 2016 have reiterated that criminal prosecutions were forthcoming and that “no-poach” conduct identified and terminated before October 2016 likely would be subject to civil enforcement. Conduct that began or persisted beyond October 2016 (when the joint guidance was issued) would be subject to criminal corporate and individual prosecution. Consistent with those statements, the settlement reached with Knorr and Wabtec resolves a civil enforcement action (rather than a criminal prosecution). The DOJ has explained that the civil lawsuit in this instance is an example of “prosecutorial discretion” and that the no-poach agreements between Knorr and Wabtec “were discovered by the Division and terminated by the parties before October 2016, prompting the Division to resolve its competition concerns through a civil action.”8
The settlement terms impose on Wabtec and Knorr onerous compliance provisions, including requirements that the settling companies:
- Each appoint an antitrust compliance officer and provide the name and contact information of the appointed compliance officers to the DOJ;
- Notify all U.S. employees of the settlement and its requirements with the manner of notification to be first approved by the DOJ;
- Annually brief top management and HR management regarding the requirements of the settlement and the antitrust laws;
- If a member of top management or HR management is replaced, the replacement of such person must be briefed on the requirements of the settlement within 60 days of succession;
- Obtain annually from top management and HR management certifications that each of them has read and understands the terms of the settlement, is not aware of any violation and understands that a failure to comply with the settlement terms may result in an enforcement action against individuals and/or the company;
- Inform all external recruiting and staffing agencies used by the companies about the requirements of the settlement;
- Have each company’s CEO or CFO, and General Counsel, certify to the United States annually that the company has complied with the settlement terms; and
- Publish notice of the settlement to the rail industry, including through print advertising in industry trade publications and the creation of dedicated website pages (to be maintained for at least one year).
The settlement terms also require the settling companies to allow the DOJ to conduct periodic compliance inspections and interviews of the companies’ records and employees. Moreover, in the event that a settling defendant violates the terms of the settlement and final judgment and the DOJ successfully moves to enforce the settlement against that company, the company must reimburse the DOJ for any attorneys’ fees, experts’ fees and other costs incurred in connection with the DOJ’s enforcement efforts, including the investigation of the potential violation.
On April 11, 2018, the first class action was filed against Wabtec, Knorr, Faiveley and a number of their rail-related subsidiaries in connection with the conduct alleged in the DOJ Complaint. Filed in the Western District of Pennsylvania by a resident of Arlington, Texas who worked from 2013 to 2016 as a signal line engineer for a subsidiary of Wabtec, the class action complaint alleges that a conspiracy among Wabtec, Knorr, and Faiveley, including certain of their affiliates in the U.S., caused the plaintiff to earn less than he would have earned absent the conspiracy. The class action complaint is brought on behalf of all employees of Wabtec, Knorr and Faiveley (and their wholly owned subsidiaries) between 2009 until the present and seeks treble damages to compensate purported class members who were purportedly under-compensated as a result of the alleged conspiracy. Excluded from the purported class are senior executives and personnel in the human resources and recruiting departments. The named plaintiff is represented by Hausfeld LLP.
In the wake of the enforcement action against Knorr and Wabtec, we recommend that companies consider taking one or more of the following steps:
- Consider what inter-company non-competition and non-solicitation arrangements may exist, and if the company may have exposure for anticompetitive conduct related to its recruiting and hiring practices.
- Conduct antitrust training (or refresher training) for senior management involved in or responsible for recruiting, hiring and compensation activities and personnel in human resources and recruiting departments.
- Provide senior management, human resources personnel and recruiting personnel with a copy of the October 2016 Antitrust Guidance for Human Resources Professionals jointly issued by the DOJ and FTC and encourage relevant company personnel to familiarize themselves with the Antitrust Red Flags for Employment, which were issued in conjunction with the October 2016 joint guidance.
- Not all no-hire or non-compete arrangements are unlawful. However, the structure and legality of all such agreements must be considered carefully. Accordingly, run all no-poach, non-competition and non-solicitation terms past a qualified antitrust and employment attorney before they are proposed, even orally, to another party. While such terms may be justified if ancillary to a legitimate business arrangement (such as a teaming agreement, subcontracting agreement or joint venture, for example), the language and terms should be reviewed for antitrust compliance.
- Consult antitrust counsel to evaluate potential exposure and discuss next steps if potential wrongdoing is detected. Even if an antitrust violation has been committed (or is ongoing), the company may have important mitigation options, including, for example, applying for amnesty or reduced penalties through the DOJ Antitrust Division’s robust Leniency Program. Time is of the essence in such situations as the first company to report potential anticompetitive conduct receives the best benefits. Moreover, DOJ has made clear that it does not consider management ignorance to be a defense and that it will vigorously prosecute antitrust violations in the employment area.
Companies operating in industries in which highly skilled and uniquely trained employees are in high demand and low supply (such as pharmaceuticals, financial services, high tech, and specialized energy services and supply among others) may be particularly vulnerable to antitrust issues in this area, but all companies would be well-advised to take possible vulnerabilities seriously.