Last week the Federal Trade Commission and the Department of Justice jointly issued guidance to educate companies, and in particular human resource professionals, on how antitrust laws apply in the employment arena, particularly with respect to hiring and compensation matters. Human resource professionals should familiarize themselves with this guidance, which we summarize below, as the DOJ and FTC made it clear that HR professionals may be held individually responsible for certain employment-based antitrust violations.
The Guidance Takes An Expansive View of Competing Employers
With the release of the Antitrust Guidance for Human Resource Professionals, the DOJ and FTC removed any doubt that, at least from the perspective of these two agencies charged with enforcement of the federal antitrust laws, “competing employers” may violate those laws when they “limit or fix the terms of employment for potential hires” where the “agreement constrains individual firm decision-making with regard to wages, salaries, or benefits; terms of employment; or even job opportunities.” And as the guidance notes, the concept of “competing employers,” is much broader than many realize, because all employers that compete to hire or retain employees are competitors in the employment marketplace, regardless of whether the firms’ products or services compete with each other.
No-Poaching and Wage-Fixing Agreements Targeted
In particular, the DOJ/FTC take aim at so-called “no poaching” and “wage-fixing” agreements. No poaching agreements are agreements between two (or more) companies who agree not to solicit or hire each other’s employees. Wage-fixing agreements are agreements in which the parties agree to set their employees’ salaries or other compensation (as well as benefits) at a specific level or range.
It is per se illegal under the antitrust laws for competitors to expressly or implicitly agree, whether directly or through third parties, to enter into these agreements (even if motivated by a desire to reduce costs) unless the agreement is reasonably necessary to a larger legitimate business collaboration between the employers. The guidance provides recent examples of enforcement actions brought by both agencies, including cases where competitors agreed not to cold call each other’s employees and boycotts of industry employee registries designed to eliminate competition for those employees.
What are “Agreements Reasonably Necessary to a Larger Legitimate Business Collaboration Between Employers?”
In answering that question, the guidance merely points to “legitimate joint ventures (including, for example, appropriate shared use of facilities).” In our view however, employers may still enter into certain non-hire/non-solicit pacts in connection with mergers and acquisitions, investments and divestitures (including during the due diligence process); when entering into consulting agreements and agreements with other similar service providers and other shared services agreements; and when entering into certain settlement agreements. However, any such agreements must be entered into for legitimate business reasons and narrowly tailored. For example, during an IT consulting project, the companies may agree not to poach only those employees working on that project; or for the three months after the acquisition of the seller’s life insurance business, the seller will not target the employees working in the division acquired by the buyer. While not per se unlawful, employers should be particularly careful when utilizing these agreements in connection with a settlement with a competitor.
(We must also point out that the guidance does not address non-solicitation agreements between a particular employer and its employees. However, as this Blog’s readers well know, agreements between an employer and employee containing employee non-solicitation covenants raises its own set of legal issues that employers should carefully consider.)
Employers Should Avoid Other Indirect Anti-Competitive Employment-Based Acts
“Naked” agreements to fix wages or not to poach are per se illegal, but the guidance also dives deeper into other forms of potentially illegal behavior, including through the sharing of certain sensitive information between competing employers, such as the sharing of compensation information, that may put employers at risk. The sharing of such sensitive information can serve as evidence of an implicit illegal agreement not to compete. The guidance provided an example of an association of human resources professionals that the DOJ pursued for conspiring to exchange non-public prospective and current wage information about registered nurses, which caused hospitals to match each other’s wages and therefore artificially depress the nurses’ wages. As this example demonstrates, the violation can occur indirectly through the use of a third-party intermediary.
The Guidance is Careful Not to Prohibit the Sharing of Any Compensation Information
This does not mean however that employers cannot provide or gain access to certain wage and other related data for legitimate reasons, such as to maintain their ability to attract and retain talent (usually through wage surveys) and in connection with M&A activity. The guidance is aware of these legitimate interests, but stresses the need to exchange compensation information in a way that complies with the antitrust laws.
The guidance notes that an information exchange may be lawful if:
- a neutral third party manages the exchange,
- the exchange involves information that is relatively old,
- the information is aggregated to protect the identity of the underlying sources, and
- enough sources are aggregated to prevent competitors from linking particular data to an individual source.
With respect to wage surveys, the guidance also points employers to another joint guidance document related to their enforcement policy in health care, and in particular Statement 6, which identifies an “antitrust safety zone,” that employers should enter when participating in these surveys so that it is less likely that antitrust concerns are raised.
With respect to a potential transaction, the guidance says that the sharing of limited competitively-sensitive compensation data may be lawful if it is connected with a “legitimate merger or acquisition proposal” and “appropriate precautions are taken.” We presume this latter phrase means that the information is shared in a limited and narrow way in order to avoid an anti-competitive effect.
The Potential Consequences for Getting This Wrong Are Severe
The DOJ indicated that it intends to criminally investigate naked no-poaching or wage-fixing agreements between employers that are unrelated to, or not reasonably necessary for, a larger legitimate collaboration between those firms. It has also indicated that it could investigate and prosecute not just the company, but individuals as well, including human resource professionals. Actions that do not constitute criminal violations may still lead to civil liability under statutes enforced by either the FTC or the DOJ.
I am a HR Professional, So What Should I Do Now?
You should, at a minimum read the guidance’s Q&A section that identifies common employment scenarios, as well as the provided list of employment practices that raise red flags as potentially illegal under the antitrust laws. Those practices include:
- Agreeing with another company about employee salary or other terms of compensation, either at a specific level or within a range.
- Agreeing with another company to refuse to solicit or hire that other company’s employees.
- Agreeing with another company about employee benefits.
- Agreeing with another company on other terms of employment.
- Expressing or signaling to competitors that you should not compete too aggressively with one another for employees.
- Exchanging company-specific information about employee compensation or terms of employment with another company.
- Participating in a meeting, such as a trade association meeting, where the above topics are discussed.
- Discussing the above topics with colleagues at other companies, including during social events or in other non-professional settings.
- Receiving documents that contain another company’s internal data about employee compensation.
You should also make other decision makers involved in hiring and compensation issues aware of this guidance and incorporate the general principals of this guidance into appropriate training programs. Training on this issue is particularly important for you and other HR professionals who engage in compensation planning and analysis and talent management.