On October 20, 2016, the Department of Justice (DOJ) and the Federal Trade Commission (FTC) jointly released guidance regarding the application of antitrust laws to employee hiring and compensation.
The guidance noted that many companies compete against each other to hire and retain employeesand that agreements that constrain an employer’s decisions about “wages, salaries, benefits; terms of employment; or even job opportunities” may violate antitrust laws. Although the agencies directed the publication at human resources professionals, the guidance is notable for all business leaders, as well as non-profit organizations, universities, and professional associations, given its wide ranging implications.
The DOJ Intends to Bring Criminal Actions
The most significant part of the guidance is that DOJ made clear its intention to bring criminal charges against individuals and companies who engage in wage-fixing and no-poaching agreements. In the past, the government has typically pursued employment-related antitrust cases as civil violations. However, the guidance made it clear that “[g]oing forward, the DOJ intends to proceed criminally against naked wage-fixing or no-poaching agreements.”
The DOJ characterized these sorts of agreements as “eliminat[ing] competition in the same irredeemable way as agreements to fix product prices or allocate customers.” Accordingly, companies should ensure that human resources professionals—and executives, hiring managers, and other business leaders—receive robust antitrust compliance training that recognizes the competition and antitrust risk in the hiring and retention of employees, in the same way that competition and antitrust risk exist in the pricing of a company’s products.
Antitrust Risk in Due Diligence
The guidance also specifically highlighted that sharing certain employment information in due diligence for an acquisition or joint venture could violate antitrust laws—even without an illegal agreement to fix wages or refrain from poaching employees. Simply sharing sensitive employment or wage information improperly may be sufficient to violate civil antitrust laws.
Due diligence—including diligence on employment terms or conditions—is an important part of any transaction, and although the agencies recognized that “in the course of determining whether to pursue a transaction, a buyer may need to obtain limited competitively sensitive information,”
the agencies highlighted increased antitrust risk “if [the parties] share information about terms and conditions of employment.”
It is important for companies engaged in due diligence to take precautions to ensure that the sharing of sensitive information does not present undue antitrust risk. Specifically, companies engaging in due diligence in employment areas should restrict access to sensitive information to a designated team of individuals (a “clean team”) comprised of business employees who do not make decisions regarding employment issues or outside third parties (e.g., consultants).
And the agencies’ recent guidance underscores the importance of such a process—not only for sensitive employment information, but for other commercially sensitive data (e.g., pricing, cost, or margin information) as well.
The Guidance Also Covers Non-profits and Universities
Although it is well settled that antitrust law applies equally to for-profit and non-profit entities, the guidance is an important reminder that non-profit corporations, universities, and professional associations may face antitrust risk, even if an organization does not actively sell products or services. In fact, the guidance specifically included several discussions of how antitrust risk in this area might apply to non-profits, noting that agreements to limit employment competition among non-profits will violate antitrust laws, even if motivated by a desire to “keep costs down so [the non-profit] can serve more people.”