Making sure your employment policies are antitrust compliant
Did you know that your employment practices could violate antitrust law? 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. In this context, the job market is, like any other market, subject to antitrust law.
Failure to consider carefully the relevant antitrust and employment risks of a transaction at an early stage may trigger expensive injunctive actions, fines and damages, and may affect the reputation of your company. In the US, it may now even result in criminal prosecution.
No-poaching agreements – be aware of the risks associated with recruiting competitor talent
Employees are important firm assets and firms have legitimate interests in retaining valuable employees and minimising employee turnover. No-poaching agreements (ie agreements that restrict a firm from recruiting or hiring a competitor’s employees) are a relatively common practice that should, however, be carefully analysed. When companies agree not to hire from each other to keep wages down for employees, this becomes an anti-competitive exercise that adversely affects both employees and the market.
In the US, the DOJ recently conducted a high-profile investigation involving some of the major Silicon Valley companies and found that their ‘no cold call agreements’ – to refrain from contacting employees at competitor companies with job offers – breached the antitrust rules. This resulted in private follow-on damages cases that had multimillion-dollar settlements (reportedly in excess of $435m), on top of legal fees and serious reputational damage.
Following that case, the DOJ issued its Antitrust Guidance and Red Flags for HR Professionals according to which, naked no-poaching agreements among employers are per se illegal under the antitrust laws. That means that if the agreement is separate from or not reasonably necessary to a larger legitimate collaboration between the employers (eg an R&D JV), the agreement is deemed illegal without any inquiry into its competitive effects.
The Guidance also makes clear that the DOJ will investigate such no-poaching or wage-fixing agreements using its criminal powers. In September 2017, Deputy Assistant Attorney General Barry Nigro stated that the DOJ was currently examining a number of such cases. He was widely quoted as saying that he was ‘surprised’ by the large number of such investigations, further observing ‘the fact that we have so many investigations in this area highlights how seriously the division takes these sorts of allegations’. It would appear that the DOJ is making good on its promise of much more vigorous enforcement in this area.
The legality of no-poaching and wage-fixing agreements is also receiving considerable attention in Europe. No-poaching agreements are not per se illegal. However, agencies normally view no-poaching agreements as unlawful horizontal market allocations when they negatively impact competition by: (i) diminishing competition among firms to attract skilled employees; (ii) decreasing employees’ access to other, more lucrative employment opportunities; or (iii) limiting employees’ ability to change jobs readily within their chosen fields. This means the agreements are illegal if agencies can show these effects.
"In today’s world with increasing concerns over jobs and benefits, it is expected that agencies will be much more likely to accept that the anti-competitive effects of these no-poaching agreements have been or can be shown".
Alan Ryan, Antitrust Partner, Brussels
As an example, in Spain the National Commission for Markets and Competition (CNMC) imposed total fines of €14m for a cartel in the freight forwarding industry, citing a no-poaching agreement as one of the elements of the anti-competitive conduct that infringed both EU and Spanish law. Authorities have also struck out several other no-poaching agreements in countries such as France, Germany and the UK based on non-competition grounds.
"Very often HR departments assume that since they neither market nor sell products or services, competition law compliance is not a matter of concern. While it is true that most antitrust cases involve allegedly impermissible concerted action among sellers, many fail to appreciate that the antitrust laws in most jurisdictions also proscribe price co-ordination among buyers. Having defended companies in both government HR investigations and private litigation, I can attest that this can be a very hard lesson to learn".
Terry Calvani, Antitrust Of Counsel, Washington DC
The antitrust risk of exchanging HR information
Following the issue of the US Guidance, the exchange of HR information among companies has also become an increased risk. In particular, antitrust concerns may arise if a company exchanges company-specific information about employee compensation or terms of employment with another company.
This also applies to the EU and other countries, where exchanges of confidential information can give rise to an infringement of competition law and to potential fines for the companies involved. In the EU, even the unilateral disclosure of information could constitute a prohibited concerted practice for the purposes of EU competition law. An undertaking that receives information relating to an anti-competitive arrangement, without manifestly opposing it, will be taken to have participated in a concerted practice, unless that undertaking puts forward evidence to establish that it had indicated its opposition to the anti-competitive arrangement to its competitors.
This means that companies should review their HR benchmarking studies. In order to avoid liability for information exchanges, parties should consider: exchanging information through a neutral third party that only publishes aggregated information, which shields the identity of the underlying sources; or only exchanging older, historic data (usually at least one year old).
"The key point to remember is that, in the EU, the mere receipt of information concerning competitors may be sufficient to give rise to a prohibited concerted practice".
Uta Itzen, Antitrust Partner, Düsseldorf
Whistleblowing – navigating the changing landscape
We are seeing that whistleblowing continues to make the headlines and the role of the whistleblower has become even more prominent in recent times.
We believe that there is a clear business interest in ensuring that the right whistleblowing framework and culture are in place to encourage employees to speak up without fear of retaliation. This can allow businesses to identify problems, investigate internally at an early stage and resolve any issues, all while retaining control of the process – something that may be lost if the employee feels they are not being taken seriously and goes to a regulator or the press with their complaint.
Last year, we carried out a whistleblowing survey, publishing the results in November 2017. We gathered opinions from 2,500 business managers across Germany, France, Hong Kong, the UK and the US on the attitude to whistleblowing across different jurisdictions.
Our key finding is that there has recently been an increase in employee involvement in whistleblowing: whistleblowing is becoming more the ‘norm’ (47 per cent of business managers are either witnessing or engaging in whistleblowing). However, the case remains that a significant proportion of managers polled (55 per cent) think employees believe that blowing the whistle would have a negative impact on them personally.
Organisations continue to have a clear interest in ensuring that the right whistleblowing framework and culture are in place in order to deal properly with an issue and prevent further damage more quickly, rather than leave an employee with no option but to raise the issues externally, most likely at a later stage, by which time matters may have escalated.
"It can be invaluable to take a proper look, with the benefit of hindsight, at why the incident leading to the investigation came about, why the risk management process was compromised on that occasion, what lessons can be learned, and what could be improved for next time. This type of review can set the business on the right track for any future issues that might come along".
Caroline Stroud, Partner, London, and Global Head of People and Reward
Looking ahead in 2018
- Make sure you update your competition compliance programmes and include training for your HR teams.
- Do not agree employee salaries or terms of employment with another company or refuse to solicit or hire that other company’s employees.
- Do not exchange company-specific information about employee compensation or terms of employment with another company.
- Review whistleblowing procedures in your company.