by Thomas York
The U.S. Department of Justice Antitrust Division (DOJ) and the Federal Trade Commission (FTC) issued new guidance alerting managers and human resource (HR) professionals on how to avoid antitrust issues in hiring and compensation practices. The guidance addresses so-called “no-poaching” agreements, other agreements among employers to limit or fix wages or other terms of employment, as well as HR-related information exchanges. Importantly, the guidance makes clear that DOJ intends to proceed criminally against “naked” wage-fixing and no-poaching agreements. Entering these agreements poses significant risks for both companies and their employees. Companies should consider renewed attention to these issues through compliance training.
Potential criminal prosecution of agreements on recruitment of employees and terms of employment. Wage-fixing agreements seek to limit or fix employee compensation, either at a specific or general level. An illegal agreement could also include agreements on other terms and conditions of employment, such as job benefits (employees’ perks and subsidies) that are part of the total compensation package. No-poaching agreements include scenarios when individuals from different companies refuse to either solicit or hire each other’s employees.
Wage-fixing and no-poaching agreements have triggered both government enforcement actions and private litigation. Following a 2009 DOJ investigation of alleged anti-solicitation agreements in Silicon Valley, a class action suit was filed against Apple, Intel, and other high-tech companies alleging that senior executives conspired to suppress wages by agreeing not to solicit each other’s employees. Plaintiffs’ expert estimated damages of $3 billion, which would be trebled to $9 billion under the antitrust laws. More recently, class actions involving no-poaching agreements have been brought against a variety of industries, including major animation studios (Disney, LucasFilm, DreamWorks). A class action complaint was filed last year against Samsung Electronics and LG Corp., based in part on a recruiter’s statement that he was forbidden to solicit LG employees due to a no-poaching agreement involving the companies’ executives.
According to the new DOJ/FTC guidance, “naked” wage-fixing and no-poaching agreements among employers will be viewed as per se illegal—that is, condemned without the need to show anticompetitive effects. A “naked” agreement is one that is not reasonably necessary to advance a larger legitimate collaboration between employers, such as participation in a joint venture.
In the past, the federal agencies have brought civil enforcement actions challenging alleged no-poaching and wage-fixing agreements. The new guidance makes clear that, going forward, DOJ will criminally investigate allegations that employers have agreed to fix compensation or not solicit or hire each others’ employees. If an investigation uncovers evidence of a “naked” agreement, DOJ may pursue criminal charges against culpable companies and individuals.
Unfortunately, the guidance leaves many important questions unresolved. For example, it is unclear what factors DOJ will take into account in exercising its prosecutorial discretion to pursue criminal charges for no-poach or no-hire agreements. Likewise, many no-poach or no-hire agreements are made ancillary to an underlying collaboration between employers (e.g., a joint R&D agreement). It is unclear when the agencies will view such restraints as justifiable, and when they are overbroad (e.g., the scope of covered employees or the duration of the agreement).
Agreements to exchange HR-related information. The agencies also provided guidance on permissible HR information exchanges among employers. Unlike no-poach or similar agreements, information exchanges are not per se illegal and therefore not prosecuted criminally. However, exchanges of HR-related information can result in civil liability when they have, or are likely to have, an anticompetitive effect. For example, evidence that two or more companies agreed to share current or future compensation information could violate antitrust laws.
Not all information exchanges are illegal. For example, companies routinely exchange compensation-related information during merger discussions. In these and other cases where there is a legitimate basis for the information exchange, companies can minimize antitrust risk by following certain procedures, including:
- hiring a neutral third party to manage the exchange of nonpublic information,
- aggregating information such that recipients cannot identify the particular source,
- aggregating sources to prevent competitors from linking compensation data to a particular employer, and
- exchanging relatively old compensation information.
The DOJ/FTC guidance highlights the need for antitrust review of HR practices and appropriate training for HR professionals. Employers should consult with antitrust and labor counsel before sharing hiring and compensation information and to ensure their employment agreements do not contain potentially unlawful restrictions.
Thomas York is an associate at Jones Day. He can be reached at email@example.com.