By agreeing not to poach another business’s employees, or by sharing information with another business about your employees’ wages, you may be violating antitrust laws. The U.S. Justice Department’s (DOJ) Antitrust Division and the Federal Trade Commission (FTC) are taking an aggressive stance against such business practices and warning that they may trigger civil and criminal liability for businesses and individuals.
The Sherman Antitrust Act prohibits contracts, conspiracies, or combinations “in restraint of trade or commerce.” Refining this broad edict, in October 2016, DOJ’s Antitrust Division and the FTC jointly published Antitrust Guidance for Human Resource Professionals to alert employers to the fact—which may come as a surprise to many—that the federal antitrust laws apply to competition among businesses in the hiring of employees. Businesses that compete for employees are competitors in the employment marketplace, even if the businesses are not competitors in the goods or services they sell. As explained in the Guidance, an “individual likely is breaking the antitrust laws” if he or she:
- agrees with individuals at another company about employee salary or other terms of compensation, either at a specific level or within a range (so-called wage-fixing agreements), or
- agrees with individuals at another company to refuse to solicit or hire that other company’s employees (so-called “no poaching” agreements).
Such agreements may violate the Sherman Act even if they are informal or unwritten. Even if there is no oral or written agreement, other circumstances – such as evidence of discussions, sharing wage information, or parallel behavior – may be evidence of an implicit illegal agreement.
Depending on the facts, the DOJ could bring a criminal prosecution against individuals, the company, or both. Both DOJ and the FTC could bring civil enforcement actions. In a criminal Sherman Act case, a company can face fines of up to $100 million, while individual executives and other employees can face fines of up to $1 million and up to 10 years’ imprisonment. In addition, a party injured by an illegal agreement among businesses could bring a civil lawsuit for treble damages (i.e., three times the damages suffered) and attorneys’ fees.
DOJ and the FTC have brought antitrust actions for no-poach and wage-fixing agreements against several businesses, including eBay, Intuit, Lucasfilm, Pixar, Adobe, Apple, Google, and Intel, for agreeing not to solicit each other’s employees or agreeing to try to reduce or fix employee compensation. Most ominously, on April 3, 2018, DOJ noted that it had elected to pursue one such case as a civil, rather than criminal, only because the companies’ no-poach agreements had ended before the DOJ and FTC issued the Guidance. Thus, if a business’s no-poaching or wage-fixing conduct occurred after October 2016, criminal charges are more likely.
There are limited situations in which businesses may agree, without violating antitrust laws, to not solicit each other’s employees or to share information about employee wages, if the agreement is reasonably necessary to a larger, legitimate collaboration between the businesses and is narrowly tailored to advance that collaboration with limited impact on competition. For example, it may be permissible to agree to a restriction on hiring as part of a legitimate joint venture, teaming agreement, design-build agreement, or other legitimate business collaboration if the restriction is necessary and narrowly tailored. Likewise, there are exceptions allowing businesses to share competitive information in evaluating whether to pursue a merger or acquisition. Agreements with individual employees prohibiting competition or the solicitation of employees are lawful if reasonable in scope and duration.
Even if you think an exception may apply, it is critical that you review any no-poaching or wage-information sharing proposals with your legal counsel before mentioning them to another business because even proposing such an agreement may be a violation of the Sherman Act. Where a narrow non-solicitation clause may be permissible as part of a larger, legitimate business collaboration, careful drafting is essential. If you believe that you or your business may have made an impermissible agreement, you should promptly consult with counsel to determine if a violation has occurred and, if so, the best way to rectify that mistake.