The US Department of Justice’s Antitrust Division will soon announce its first criminal charges involving “no poaching” agreements—agreements to refuse to solicit or hire another company’s employees—after previously announcing in October 2016 that the department would bring such enforcement actions under federal antitrust law.
The head of the US Department of Justice’s Antitrust Division (DOJ), Assistant Attorney General (AAG) Makan Delrahim, announced on January 19, 2018, that the DOJ will bring its first criminal cases involving alleged “no poaching” agreements in violation of the Sherman Act in the coming months. In particular, AAG Delrahim warned that if such activity “has not been stopped and continued from the time when the DOJ’s [new antipoaching] policy was made” in October 2016, “we’ll treat that [conduct] as criminal.” He added, “I've been shocked about how many of these [agreements] there are, but they're real.”
As we noted in our prior LawFlash following the October 2016 policy announcement, the DOJ and the Federal Trade Commission (FTC) jointly issued the Antitrust Guidance for Human Resource Professionals (the Antitrust HR Guidance), which signaled for the first time that the DOJ would “proceed criminally against naked wage-fixing or no-poaching agreements.” Moreover, under the Antitrust HR Guidance, this conduct may be considered per se illegal, meaning that companies could not normally escape liability by seeking to explain or justify such agreements.
With his remarks, AAG Delrahim underscored the recent DOJ focus concerning criminal prosecution of naked wage-fixing and no-poaching agreements. The enforcement efforts were also noted in September 2017 by then Acting AAG Andrew Finch.
In light of AAG Delrahim’s statements, companies should urgently consider reviewing their internal policies and practices to make sure their HR professionals and executives have not engaged in conduct that could be considered a no-poaching or wage-fixing agreement. The DOJ has made clear that engagement in such conduct or agreements after October 2016 when the policy was first announced may be criminally investigated and prosecuted.
Increased Criminal Focus
As discussed in the Antitrust HR Guidance, the antitrust laws require employers to compete to hire or retain employees, so as to “help actual and potential employees through higher wages, better benefits, or other terms of employment.” No-poaching and wage-fixing agreements potentially violate these laws, as they may restrict competition among companies by employers agreeing not to recruit certain employees or not to compete for employees by offering competitive compensation or other similar terms. The risk of violating the antitrust laws is heightened if the no-poaching or wage-fixing agreement could be deemed a “naked” agreement (that is, not reasonably necessary for achieving a legitimate business purpose).
The DOJ and FTC have previously investigated and challenged no-poaching and wage-fixing agreements as violations of federal antitrust law. However, the agreements were treated as civil violations, and were usually settled with the charged companies committing to put an end to the agreements. For example, in 2010, the DOJ filed civil lawsuits against six large technology companies, and ended the matter by entering into settlements preventing the companies from entering into such agreements with employees.
As summarized in the Antitrust HR Guidance,
An individual likely is breaking the antitrust laws if he or she:
- agrees with individual(s) 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 individual(s) at another company to refuse to solicit or hire that other company’s employees (so-called “no poaching” agreements).
While the consequences and costs of a civil enforcement action can be significant, the penalties resulting from a criminal prosecution are even higher. In a criminal Sherman Act case, a company can face fines of up to $100 million, while individual HR professionals and executives can face fines of up to $1 million and up to 10 years’ imprisonment. Companies may also find themselves facing costly follow-on civil actions by employees or others alleging they were harmed by challenged no-poaching or wage-fixing agreements, which may result in the company having to pay treble damages and plaintiff attorney fees.
Recommended Steps for Companies and In-House Counsel
There are a number of measures that companies and in-house counsel can take to avoid criminal or civil exposure:
- Evaluate post–October 2016 conduct. The DOJ has yet to bring its first criminal prosecutions for no-poaching agreements; however, following its policy announcement in October 2016, the DOJ is looking at this conduct to consider criminal charges. If companies have these types of agreements in place, they should take steps to amend and modify the agreements to comply with the policy guidance. Experienced antitrust counsel can recommend appropriate changes and steps to help protect companies and individuals from exposure.
- Expand antitrust compliance training to HR personnel. Just as sales and marketing personnel need to learn how to avoid entering into criminally unlawful price-fixing and market-allocation agreements, HR personnel should learn how to identify and ameliorate any potential wage-fixing or no-poaching agreements, some of which may not be apparent on their face. Companies should consider extending or expanding antitrust training to their HR personnel.
- Information exchanges are permissible only if carefully designed to conform with antitrust laws. Although exchanging sensitive employee compensation information without an agreement is not per se criminally unlawful, the Antitrust HR Guidance notes that the DOJ and FTC may still pursue civil actions against participants in such information exchanges if those exchanges have an anticompetitive effect, and cautions companies not to exchange hiring policies among one another. Companies seeking information on what “market” wages are in a particular industry may use a third party to aggregate this compensation information, thereby obscuring the underlying source of any information. Further, a buyer may receive employment compensation information from a target company if such information is aggregated or obtained through the use of a clean team.
- Distinguish “naked” and legitimate wage-fixing and no-poaching agreements. Although agreements to fix wages or eliminate poaching that serves no other purpose than cost savings may be considered per se unlawful, other similar agreements may be lawful if they serve a legitimate purpose. For instance, an agreement between two joint venture partners to restrict competition between them for the joint venture’s employees may be lawful if narrowly tailored to aid the joint venture’s success. Similarly, employee noncompetition agreements may also be lawful if reasonable in scope and duration. Always consult with antitrust counsel if the antitrust risks associated with a specific agreement are unclear.
- Consult with experienced antitrust counsel if wrongdoing is detected, particularly for conduct occurring after October 2016. Given AAG Delrahim’s statement that the DOJ would treat no-poaching and wage-fixing agreements persisting after the Antitrust HR Guidance’s October 2016 issuance as criminal violations, if in-house legal counsel becomes aware of concerns in this area, they should promptly consult with experienced antitrust counsel, who can help determine the appropriate steps to take. For example, if a company can qualify for the Antitrust Division’s Leniency Program, the company may avoid criminal fines and minimize civil liability.