On Oct. 20, the U.S. Department of Justice (DOJ) and Federal Trade Commission (FTC) jointly issued antitrust guidance for human resources professionals. The agencies also released a list of high-level red flags for the unwary.
The DOJ and FTC’s guidance reminds HR professionals to avoid entering into agreements concerning wages, employee benefits, or terms of employment with their competitors. The guidance also directs competing employers to steer clear of “no poach” agreements except in limited circumstances, such as in connection with the sale of a business.
Traditionally, these sorts of employment-related arrangements have been a hotbed of antitrust enforcement activity, most notably in the technology sector. Until now, the government has challenged these arrangements through civil lawsuits that simply broke up the unlawful arrangements and prevented them from happening again. The DOJ and FTC’s new guidance changes that. “Going forward,” the guidance warns, “the DOJ intends to proceed criminally against naked wage-fixing or no-poaching agreements.” This guidance is, therefore, a shot across the bow for HR professionals, who in the future may find themselves facing jail time for improper wage-fixing or no-poaching agreements.
Among many other things, the federal antitrust laws prohibit agreements between two or more companies that unreasonably restrain competition. In many cases, the legality of an agreement depends on a fact-intensive determination of whether the agreement’s potential harms outweigh its potential benefits. Over the years, however, the courts have identified a relatively small number of activities that are deemed to always harm competition and, therefore, are illegal “per se.” For example, whenever two competing sellers of goods enter into an agreement to fix prices or to divide customers, those agreements are illegal no matter what. For much the same reasons, when two employers that compete to hire or retain employees enter into an agreement to fix wages or not to poach one another’s employees, those agreements are also (with some exceptions) illegal no matter what.
Until now, the government has opted to challenge wage-fixing and no-poaching agreements civilly rather than criminally. However, the new guidance changes this. Going forward, the HR community should consider itself on notice that “the DOJ may, in the exercise of its prosecutorial discretion, bring criminal, felony charges against the culpable participants in [a wage-fixing or no-poaching] agreement, including both individuals and companies.” While the new administration may very well bring changes in DOJ enforcement priorities (see our companion article for an analysis of post-election employment law considerations), this guidance remains in effect unless and until instructed otherwise. The potential criminal liabilities are significant: Culpable individuals may face up to 10 years in prison, and individuals and corporations may face substantial monetary penalties for per se unlawful agreements.
Six Tips for HR Professionals
To minimize these risks going forward, HR professionals need to review the DOJ and FTC guidance and red flags and, where necessary, should seek out the advice of counsel. However, a few other tips are worth sharing.
1. Wage and no-poaching provisions can be lawful in certain circumstances.
There are some important exceptions to the DOJ and FTC’s guidance on wage-fixing and no-poaching agreements. Most importantly, the risk of criminal liability only applies to “naked” wage-fixing or no-poaching agreements. For example, when one company sells a business unit to another company, it is common for the seller to agree not to solicit its former employees away from the business unit being sold for some period of time following the sale. In these cases, the no-poaching agreement is not a “naked” restraint of trade — in other words, it is not a freestanding agreement in its own right — but rather is considered a mere “ancillary” restraint that helps ensure the success of the primary agreement to sell the business unit. In these cases, a wage-related or no-poaching agreement can be legitimate and lawful. But the line between a “naked” agreement and an “ancillary” restraint is a fine one, and HR professionals should be sure to consult with counsel to understand where the line falls.
2. Companies still can make unilateral decisions regarding poaching and terms of employment.
It is important to stress that the DOJ and FTC guidance does not apply to truly unilateral actions of individual corporations. If a company on its own decides not to poach its competitors’ employees or on its own decides not to get into a bidding war over a potential hire, that remains the company’s right. However, the moment that a company agrees with another company about the terms of employment, it risks running afoul of the antitrust laws.
Importantly, such an agreement need not be a formal, written contract. To the contrary, an unlawful agreement for antitrust purposes can be as simple as a “gentleman’s agreement,” an unspoken understanding or, in the words of one court, “a knowing wink.”
3. Companies do not need to be direct competitors to run afoul of the law.
Two companies do not need to be direct competitors for an agreement between them to run afoul of the antitrust laws. For instance, if a pizza parlor agreed with a coffee shop not to pay their employees more than the minimum wage, this agreement would be just as illegal as any other wage-fixing agreement, even though pizza parlors tend to sell different products than coffee shops. What matters for antitrust purposes is that the two companies compete for employees, even if they do not compete in their day-to-day businesses.
4. All employment terms — not just wages — are subject to the antitrust laws.
The DOJ and FTC will take a very hard look at agreements between companies that pertain to any employment terms, even ones that do not directly relate to wages. For instance, an agreement between two companies not to offer 401(k) matching or to limit vacations to two weeks per year could very well violate the antitrust laws. This is true even if the terms of employment are generous. That is, an agreement between two companies to cap 401(k) matching to 10 percent of salaries and to limit vacations to six weeks per year could still violate the antitrust laws, even if these terms are above market and viewed as eminently fair to employees.
5. Exercise caution in participating in wage or benefit surveys.
Companies should be on their toes before participating in surveys about wages or employee benefits. This is because wage and benefit surveys could potentially be used as subterfuges to enter into or to enforce wage-fixing agreements. Therefore, while there are a number of stepsthat companies can take to participate in wage or benefit surveys lawfully, HR departments should be careful and, where appropriate, consult with counsel before agreeing to participate in them.
6. Individuals and companies can apply for leniency by self-reporting past violations.
Last, but not least, HR professionals who may have knowledge about wage-fixing or no-poaching agreements should consult with counsel. Among other things, antitrust counsel can provide guidance about the prospect of applying for either corporate or individual leniency by ending an unlawful activity, reporting the activity to the government, and proactively cooperating with any resulting government investigation. Leniency can be the difference between freedom and jail time, but it is only available to the first individual or company that reports the activity to the DOJ.
This article originally appeared on the Foley & Lardner website. The information in this legal alert is for educational purposes only and should not be taken as specific legal advice.
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