The Federal Trade Commission and Department of Justice announced that they intend to criminally prosecute certain agreements affecting competition to hire and retain talent. The news was shared in a joint guidance on the application of the antitrust laws to hiring and compensation of employees ("HR Guidance"). The HR Guidance was followed by a White House notice and a brief from the Council of Economic Advisers supporting the new enforcement initiatives and calling for additional policies to spur competition in the labor markets, including federal and state legislation to ban non-compete agreements for certain categories of employees.1 All three notices were a direct response to President Obama's April 15, 2016 Executive Order calling for action to enhance competition in the labor markets. In light of this increased focus on hiring and compensation, companies should update their internal human resources and antitrust policies and review their current practices to ensure compliance with the HR Guidance.
Antitrust Agencies Will Aggressively Pursue Anticompetitive Conduct in Job Markets
The HR Guidance stresses that firms that compete to hire or retain employees are competitors in the employment marketplace, regardless of whether the firms make the same products or compete to provide the same services. Whether the market is for highly specialized employees or minimum wage laborers, the HR Guidance makes clear that an employer risks violating the antitrust laws if the company enters into an agreement with a firm that competes to hire similar employees:
- on salary or other terms of compensation, either at a specific level or within a range; or
- by refusing to solicit or hire the other firm's employees ("no-poaching" agreements).
The HR Guidance cautions that the DOJ may bring criminal felony charges against individuals and companies that enter into such agreements. To date, the agencies have brought only civil enforcement actions challenging coordination among employers.2 However, the agencies also acknowledge that narrowly tailored agreements ancillary to a legitimate collaboration, such as employee non-solicit agreements in the joint venture or M&A context, are unlikely to violate the antitrust laws.
Exchanges of Compensation Information Could Invite Antitrust Scrutiny
Exchanges of competitively sensitive compensation information may also violate the antitrust laws, although an implicit or explicit agreement to share information will not be prosecuted criminally unless it is a part of a per se illegal restraint such as wage-fixing or no-poaching.3 In the labor market context, the HR Guidance provides that even without an express or implicit agreement to fix terms of compensation among firms, evidence of exchanges of wage information may be used to establish an antitrust violation because the data exchange is likely to decrease compensation.
The application of the antitrust laws to information exchanges has important implications in the M&A context. In the course of determining whether to pursue a transaction, a buyer may need to obtain information on compensation of the target's employees in order to appropriately value the business and to calculate synergies. The HR Guidance cautions that absent safeguards, sharing data regarding terms and conditions of employment could violate antitrust laws. Therefore, transacting parties that compete to hire employees should take similar precautions for sharing compensation information as are utilized in due diligence of nonpublic customer pricing and other competitively sensitive data (e.g., using a thirdparty to manage the process or aggregate information).
Heightened Scrutiny of Labor Markets may Have Broad Implications
Going forward, executives and HR professionals responsible for hiring and compensation decisions should be mindful of the increased antitrust scrutiny of employer conduct in the labor markets. The HR Guidance includes a list of "Antitrust Red Flags" to help managers and HR professionals identify inappropriate conduct. In addition, increased focus on the labor markets may prompt additional antitrust scrutiny of the potential effects of mergers on competition for employees. The Economic Advisors' brief argued that competition in the U.S. labor markets is not only harmed by collusive behavior, but also by consolidation through mergers. While the antitrust agencies are unlikely to challenge a transaction on a stand-alone theory that it may reduce competition for certain types of employees, increased scrutiny in this area could prolong the merger review process for certain transactions.