Expect criminal indictments in the near future against companies that have agreed not to recruit or hire each other's employees. That was the strong message from Makan Delrahim, the new Assistant Attorney General for the Department of Justice's (DOJ) Antitrust Division, at an antitrust conference on January 19, 2018. Known as "no-poach" agreements, these arrangements have been on the DOJ's radar since late 2016. With the change of administrations, however, many expected the Trump DOJ to have less interest in this Obama-era policy. Not so.
Both the FTC and DOJ Have Put Companies and HR Professionals "On Notice"
In guidance published in 2016 by the DOJ and Federal Trade Commission (FTC) for human resources (HR) professionals and others involved in hiring and compensation decisions ("2016 Guidance"),1 the agencies cautioned that the DOJ and FTC would aggressively enforce the antitrust laws, both civilly and criminally, against no-poach agreements, wage-fixing agreements, and other anti-competitive employment agreements. The 2016 Guidance was in contrast with prior DOJ and FTC practice, in which such issues were dealt with purely through civil enforcement. Subsequently, in a September 2017 statement, then Acting Assistant Attorney General Andrew Finch made clear that even though two companies may not be competitors in the sale of products or services, they could still be competitors for hiring certain types of employees; the DOJ stated that a no-poach agreement between them would constitute a per se (or automatically illegal) violation of the antitrust laws. These statements are simply the latest indication that the DOJ and FTC view no-poach agreements as serious restraints on competition in the employment market.
No-poach and Wage-fixing Agreements Are Not Uncommon
While some companies may believe that their exposure to such actions is unlikely, they should take notice of the number of industries that have already experienced civil litigation over no-poach and wage-fixing agreements. For example, in 2010 the DOJ filed lawsuits against six large high technology companies – Adobe Systems Inc., Apple Inc., Google Inc., Intel Corp., Intuit Inc. and Pixar – for entering into various no-poach agreements stating that the companies would not solicit each other's highly skilled employees. That matter ended when all six companies entered into settlements preventing the companies from entering into such agreements. Class action litigation ensued. In addition, the DOJ reached a settlement in 2007 with an Arizona hospital after taking action against the hospital for entering into an agreement to fix the wages of temporary nursing personnel. Furthermore, private class action antitrust lawsuits arising out of employment practices have been brought against entities in a variety of industries. This includes a recently certified nationwide class of more than 90,000 plaintiffs against 15 au pair recruitment companies that allegedly entered into illegal wage-fixing agreements, a class action involving 5,500 medical school professors against Duke University for allegedly entering into a no-hire agreement with the University of North Carolina, and a lawsuit alleging a no-poach agreement involving restaurant shift leaders.
Companies That Have Continued No-poaching Behavior Since 2016 Guidance are Likely to be Criminally Charged
Delrahim's statement is the first public announcement of imminent criminal charges relating to no-poach agreements. It further emphasizes the importance of the 2016 Guidance. Delrahim noted that the 2016 Guidance will be a crucial marker: if companies that were engaging in no-poaching activity prior to the issuance of the 2016 Guidance have continued such behavior, the DOJ will likely treat it as a criminal violation. In addition, Delrahim discussed the consent judgments settled against several technology companies in civil enforcement actions brought by the DOJ for engaging in no-poach agreements. He indicated that if these companies have not complied with the judgments in those cases, they may now be subject to criminal enforcement actions.
Companies Should Review Practices Now to Avoid Violations and Criminal Prosecution
The DOJ has now made crystal clear its commitment to criminal prosecution of no-poach agreements. Employers and HR personnel should carefully review their hiring and compensation practices, and those actually followed by other departments in their companies, to identify any potential violations of antitrust law. Any variance from the 2016 Guidance and the enforcement officials' recent statements should be promptly and vigorously addressed.