The United States' chief antitrust enforcer recently reiterated his office is serious about curtailing employee wage-fixing and no-poaching agreements.1 He also strongly suggested the Department of Justice is investigating and preparing criminal cases against numerous entities suspected of engaging in such misconduct. While the government has warned the public repeatedly of its elevated interest on the topic, some corporations are failing to take the warning seriously or failing to comprehend that agreements on hiring, compensation, and/or retention among entities that compete for employees – even if the entities do not "compete" for sales of services or goods – can violate the antitrust laws. Because nearly all companies compete at some level for employees, they need to clearly understand how they compete with other businesses for employees and the steps they can take to avoid conduct that could be construed as restricting competition for those employees.
DOJ/FTC Policy Guidance. In late 2016, the Department of Justice ("DOJ") and the Federal Trade Commission ("FTC") jointly issued a policy statement entitled "Antitrust Guidance for Human Resources Professionals."2 Pursuant to the Guidance, the federal government's primary competition regulators have begun to treat agreements among businesses not to compete regarding new or existing hires as potential criminal offenses. As a result, among other corporate and individual sanctions, jail time now is in play for corporate representatives who engage in naked employee wage-fixing or no-poaching arrangements with competitors.3 Moreover, the Guidance takes an expansive view of what it means to compete and to be a competitor. Since the relevant offense involves competition in the markets for employees, companies that do not compete against each other in the traditional sense of selling goods or services still can be subject to criminal prosecution when they eliminate competition for employees.4
Acting AAG's Support for the Guidance. In September 2017, Acting Assistant Attorney General ("AAG") Andrew Finch, left no doubt that the Trump Administration would carry forward the Guidance initiated under the Obama Administration. In his remarks at a symposium in Washington, D.C., the acting AAG discussed the Antitrust Division's continuing commitment to the Guidance. His remarks reiterated that businesses need to be aware that the anticompetitive behavior targeted by the Guidance is not agreements between companies on the "sell side" (that is, competing for sales to consumers), but rather collusive behavior between companies on the "buy side" (that is, competing for inputs such as human resources). Mr. Finch emphasized this point by stating that companies "should be on notice that a business across the street from them – or, for that matter, across the country – might not be a competitor in the sale of any product or service, but it might still be a competitor for certain types of employees ...."5
Mr. Finch also left no doubt that colluding with competitors in the employment market can be highly detrimental to a business: when companies enter into unlawful no-poaching or wage-fixing agreements, those acts constitute horizontal dealings between competitors that are per se violations of the antitrust laws.6 The grave nature of the conduct can expose the participants (companies and their responsible employees) to criminal prosecution.
AAG Delrahim Foreshadows Enforcement Actions per the Guidance. Shortly after the Acting AAG's remarks, the U.S. Senate confirmed Makan Delrahim to be the country's chief antitrust enforcer. The transition from Mr. Finch to Mr. Delrahim on the Guidance has been seamless. In January 2018, AAG Delrahim spoke directly to the government's commitment to enforcing the Guidance. In remarks at the Antitrust Research Foundation, the AAG noted the DOJ will treat as criminal any wage-fixing or no-poaching agreements in operation since issuance of the Guidance.7 On this point, he made a head-turning statement: multiple announcements will be forthcoming from the DOJ on the issue. Presumably then, the Antitrust Division has been and is pursuing (or resolving prospective) cases against numerous companies for restricting competition for employees.
For those companies at the center of the announcements, the related federal proceedings likely will be only the beginning of their legal troubles. Federal announcements and prosecutions of alleged antitrust misconduct are often quickly followed by "tag along" civil class actions. Relatedly, U.S. states may also investigate and bring actions targeting the same conduct and purported offenders. This was the case when the DOJ pursued various civil enforcement proceedings against numerous technology companies that allegedly colluded to restrict competition when recruiting and hiring specialized employees.8 In addition to federal action the State of California instigated litigation against one of the technology companies.9 And, shortly after public disclosure of the federal proceedings, a number of parties filed class actions against the tech entities, citing to the Antitrust Division's 2009 and 2010 investigation of the tech companies' conduct.10 After years of litigation, the defendants collectively paid over $400 million to settle the actions.11
Avoiding Antitrust Scrutiny of Employment Practices. Based on the recent remarks by the Antitrust Division's leadership and the assorted legal troubles that often accompany targets of federal investigations, companies will do well to heed the "notice" quoted above and issued by Acting AAG Finch – even if companies are not typical competitors, the market for employees can render them in competition and place their employment practices in the crosshairs of government enforcement (as well as subject the companies to actions by "private attorneys general").12 To help avoid unwanted antitrust attention, we highlighted in a 2016 article "red flags" published by the DOJ/FTC that identify behavior creating antitrust risks for those handling human resources.13 The flags remain as relevant today as they did then; they are restated here. The flags caution that issues can "arise if you or your colleagues:
- Agree with another company about employee salary or other terms of compensation, either at a specific level or within a range;
- Agree with another company to refuse to solicit or hire that other company's employees;
- Agree with another company about employee benefits;
- Agree with another company on other terms of employment;
- Express to competitors that you should not compete too aggressively for employees;
- Exchange company-specific information about employee compensation or terms of employment with another company;
- Participate in a meeting, such as a trade association meeting, where the above topics are discussed;
- Discuss the above topics with colleagues at other companies, including during social events or in other non-professional settings;
- Receive documents that contain another company's internal data about employee compensation."14
Because the flags use terminology that holds particular meaning under the antitrust laws (e.g., what it mean to "agree"), because subtle nuances in conduct can make the difference between lawful and unlawful competitive conduct, and because U.S. antitrust authorities (and private parties) have a healthy appetite for challenging interactions among companies regarding employee wages and hiring practices, we advise consulting with antitrust counsel to ensure the DOJ/FTC flags "stay down."
Footnotes
1 "Wage-fixing" involves agreements between employers to set compensation for individuals the employers compete against one another to hire or retain. "No-poaching" involves agreements between competing employers not to employ or seek to employ one another's employees.
2 Dep't of Justice, Antitrust Div. and Federal Trade Comm'n, Antitrust Guidance for Human Resources Professionals (Oct. 2016) https://www.justice.gov/atr/file/903511/download (hereinafter "Guidance").
3 See 15 U.S.C. § 1 (company fines up to $100 million; individual fines up to $1 million and prison terms as long as 10 years).
4 See, e.g., Andrew C. Finch, Acting Assistant Attorney General, Antitrust Div., Remarks as prepared for the 11th Annual Global Antitrust Enforcement Symposium (Sept. 12, 2017) https://www.justice.gov/opa/speech/file/996151/download ("Companies that sell different products or services might not compete for consumers, but they still can compete for workers.").
5 Id. (Finch remarks, emphasis added).
6 Id. Categories of competitive restraints treated as per se are limited to those that always or almost always tend to impair competition and output. Because of their negative affects on markets, per se restraints need not be studied for reasonableness. Leegin Creative Leather Prods. v. PSKS, Inc., 551 U.S. 887, 886 (2007).
7 AAG Delrahim gave the remarks at an event titled "What's Ahead in Antitrust," held on January 19, 2018 at the George Mason University. The Antitrust Research Foundation sponsored the event in cooperation with George Mason's Law & Economics Center.
8 See, e.g., United States v. eBay, Inc. (N.D. Cal., 12-CV- 05869-EJD-PSG) (complaint filed Nov. 16, 2012).
9 See State of California v. eBay Inc. (N.D. Cal., CV 12-5874-EJD-PSG) (complaint filed Nov. 16, 2012).
10 See, e.g., In re High-Tech Employee Antitrust Litigation (N.D. Cal. 11-CV-02509-LHK) (Consolidated Amended Complaint ¶ 3, filed Sept. 13, 2011).
11 See Id. (Order Granting Plaintiffs' Motion for Final Approval, dated Sept. 2, 2015)
12 The Sherman Act encourages private litigants to pursue antitrust violators and therefore such parties are referred to, at times, as private attorneys general. See Hawaii v. Standard Oil Co., 405 U.S. 251, 262 (1972).
14 Dep't of Justice, Antitrust Div. and Federal Trade Comm'n, Antitrust Red Flags for Employment Practices (Oct. 2016) https://www.ftc.gov/system/files/documents/public_statements/992623/ftc-doj_hr_red_flags.pdf.
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