The Antitrust Division of the Department of Justice (DOJ) has recently confirmed that it intends to bring criminal antitrust prosecutions of companies that have entered into “wage-fixing” or “no poaching” agreements. At a Jan. 19, 2018, conference hosted by the Antitrust Research Foundation, DOJ Assistant Attorney General Makan Delrahim announced the potential criminal charges, warning that such agreements would receive the same criminal treatment as traditional price-fixing.
The DOJ’s view that no-poaching agreements violate the law is not new. On Oct. 20, 2016, the Federal Trade Commission (FTC) and DOJ’s Antitrust Division issued an 11-page joint guidance document titled “Antitrust Guidance for Human Resource Professionals” (the HR Guidance), intended to alert human resources professionals and others involved in hiring and compensation decisions to potential violations of the antitrust laws. The HR Guidance made clear that “naked” agreements not to fix wages or poach employees, whether entered into directly or through a third-party intermediary, are per se illegal under the antitrust laws. By “naked,” the enforcement agencies mean that the agreement is not reasonably “ancillary” to facilitate a broader, legitimate undertaking: “[I]f the agreement is separate from or not reasonably necessary to a larger legitimate collaboration between the employers, the agreement is deemed illegal.”
The per se label means the agencies will not look to the agreement’s effects or any intention to reduce ultimate prices to consumers for the companies’ products. In other words, even if the agreement has no intended or actual effect on pricing or customers – for example, the agreeing companies do not compete for the same customers – it is per se illegal if they are competing for the same employees. The agencies made clear that they intend to police competition in the labor market in the same way that they police competition in the output markers for goods or services. However, while the HR Guidance is clear on its face, it was published during the last few months of President Obama’s tenure. It was not clear whether the Trump administration would embrace the policy shift – that is, until Delrahim made his remarks, making it unequivocal that these contracts are not only per se illegal but also subject to criminal investigation. In fact, Delrahim raised the stakes. Previously, DOJ held out criminal prosecution as a possible outcome; now, DOJ portrays it as likely. It is therefore crucial that companies familiarize themselves and abide by the HR Guidance.
The HR Guidance followed Obama-era civil enforcement lawsuits brought against Silicon Valley technology companies that entered into no-poaching agreements with competitors. In all three cases, the companies agreed not to cold call each other’s employees, and in two cases, agreed to limit its hiring of employees from a competing company. And in all three cases, the DOJ obtained civil consent judgments with promises the prohibited conduct would cease. However, Delrahim confirmed that if these companies fail to comply, they could face criminal charges. Additionally, on March 1, 2018, U.S. Senators Elizabeth Warren (D-Mass.) and Cory Booker (D-N.J.) introduced legislation that would make such agreements illegal, calling them an “anti-competitive” practice, and giving employees the ability to sue and claim damages. (To be sure, that right already exists under the antitrust laws, and employee class actions were quick to follow the earlier civil DOJ lawsuits.)
To aid companies, the DOJ and FTC published a corresponding “quick reference card” titled “Antitrust Red Flags for Employment Practices,” which warns that “antitrust concerns may arise” if employers engage in certain activities. Employers should not (1) agree to share information with competing employers regarding employee salaries or benefits, (2) agree to refuse to solicit or hire that company’s employees, (3) exchange company-specific information about employee compensation, (4) participate in meetings or even social events where any of these topics are discussed, and (5) receive documents that contain another company’s internal data about employee compensation.
While the HR Guidance does not explicitly provide for any exemptions, it does suggest agreements “reasonably necessary to a larger legitimate collaboration between employers” may not be illegal. This may include agreements necessary for the appropriate shared use of facilities (the example provided by the HR Guidance), for mergers or acquisitions, or for contracts with outsourcing vendors, where appropriate precautions are taken. In addition, the HR Guidance makes clear that “informal or formal, written or unwritten, spoken or unspoken” agreements are all vulnerable to criminal penalties – and this extends well beyond HR professionals to corporate executives and managers as well. In fact, the HR Guidance could have significant criminal consequences for anyone involved with employee hiring, recruitment and compensation benefits. The HR Guidance provides:
[T]he DOJ will criminally investigate allegations that employers have agreed among themselves on employee compensation or not to solicit or hire each others’ employees. And if that investigation uncovers a naked wage-fixing or no-poaching agreement, the DOJ may, in the exercise of its prosecutorial discretion, bring criminal, felony charges against the culpable participants in the agreement, including both individuals and companies.
Thus, not only could a company end up paying millions in fines and damages, but any individuals involved in the implementation of such agreements could end up behind bars. That said, the HR Guidance does reiterate the DOJ antitrust leniency program. As with other potential antitrust violations, the DOJ encourages reporting by providing that the first individual or corporation to report participating in any criminal antitrust violation can avoid criminal convictions and fines, so long as they fully cooperate with the investigation and meet other specified conditions. Lesser but still important types of leniency may be available to early reporters even if they are not the first in the door.
Companies should review their policies, procedures and agreements to ensure that they are in compliance with the HR Guidance, and contact outside counsel if they have any concerns.