DOJ and FTC Set Sights on Labor Market Collusion: COVID-19 Pandemic Leads to Increased Scrutiny of No-Poaching and Wage-Fixing Agreements

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Even in times of crisis, we choose a policy of competition over collusion.” -Assistant Attorney General Makan Delrahim, Department of Justice, Antitrust Division.1

As the COVID-19 crisis continues to weaken the American economy, businesses are faced with the additional challenge of following and implementing waves of new laws, regulations, and policies affecting the employment of their workers.  In the midst of this uncertainty and change, the Department of Justice’s Antitrust Division (“DOJ”) and the Federal Trade Commission’s Bureau of Competition (“FTC”) have made it clear that they will not allow employers to exploit their workers who are providing essential goods and services on the front line of the COVID-19 pandemic.

The Agencies Are on High Alert for Collusion in Labor Markets.

On April 13, 2020, the DOJ and FTC (together, the “Agencies”) released a Joint Statement notifying the public that “[t]he Agencies are on alert for employers, staffing companies (including medical travel and locum agencies), and recruiters, among others, who engage in collusion or other anticompetitive conduct in labor markets, such as agreements to lower wages or to reduce salaries or hours worked.”2 The Agencies’ Joint Statement outlined the authority at their disposal for:

  • Criminal prosecution of companies or individuals who enter into naked wage-fixing and no-poaching agreements;
  • Civil enforcement actions against companies or individuals that invite others to collude; and
  • Civil enforcement actions against employers that engage in unilateral anticompetitive conduct that harms competition in a labor market (monopsony power).

This latest announcement comes as a counterbalance to the Agencies’ March 24, 2020 Joint Statement in which they outlined an expedited antitrust review procedure for businesses seeking to collaborate together to fight the COVID-19 pandemic.3  Specifically, the Agencies stated in their March 24 Joint Statement that they would aim to resolve COVID-19-related business review requests addressing public health and safety within seven (7) calendar days of receiving all necessary information.

Similar to other recent press releases discussing COVID-19-related price-gouging and hoarding complaints, the Agencies have asked citizens and businesses to report information concerning harm to competition in American labor markets by e-mailing the FTC’s complaint center at antitrust@ftc.gov or the DOJ Antitrust Division’s Citizen Complaint Center at antitrust.complaints@usdoj.gov.4

The Antitrust Laws Continue to Apply During Emergencies.

The Agencies’ most recent Joint Statement is a good reminder that there is no immunity from the antitrust laws during emergency situations.  In fact, prior to their April 13 Joint Statement, both the DOJ5 and the FTCissued announcements warning businesses against other types of anticompetitive practices ‎in the wake of the COVID-19 crisis‎ – including price-fixing, bid-rigging, market allocation schemes, and false advertising.  Businesses that engage in these types of conduct should expect a swift response from the Agencies, particularly if their behavior exploits vulnerable workers or consumers who are at greater risk because of the current situation.

The 2016 Antitrust Guidance to Human Resource Professionals.

Though not mentioned specifically, the Agencies’ most recent Joint Statement alludes to an earlier joint antitrust guidance that the Agencies issued before the COVID-19 pandemic.  In October 2016, the DOJ and FTC issued an “Antitrust Guidance for Human Resource Professionals” (the “HR Guidance”),7 in which the Agencies warned about the consequences for entering into “no-poaching” and “wage-fixing” agreements between employers.  As explained in the HR Guidance, a no-poaching agreement occurs when an individual ‎agrees with individual(s) at another company to refuse to solicit or hire that other company’s ‎employees.  Relatedly, a wage-fixing agreement occurs when an individual agrees with individual(s) ‎at another company about employee salaries or other terms of compensation, either at a ‎specific ‎level or within a range.‎

The HR Guidance provides that going forward, the DOJ intends to proceed criminally against “naked”8 wage-fixing and no-poaching agreements. As explained by the Agencies, “[t]hese types of agreements eliminate competition in the same irredeemable way as agreements to fix product prices or allocate customers, which have traditionally been criminally investigated and prosecuted as hardcore cartel conduct.”  Accordingly, the DOJ “will criminally investigate allegations that employers have agreed among themselves on employee compensation or not to solicit or hire each other’s employees.”  And if the DOJ’s investigation uncovers a naked wage-fixing or no-poaching agreement, it may, in the exercise of its prosecutorial discretion, “bring criminal, felony charges against the culpable participants in the agreement, including both individuals and companies.”

The HR Guidance does observe that no-poaching agreements may be permissible between competitors where “reasonably necessary to a larger legitimate collaboration between the employers,” including joint ventures. More generally, limited no-poaching agreements likely are permissible (particularly between companies that are not otherwise direct competitors) when ancillary to a legitimate business purpose, such as a collaboration between distributors that are supplying necessary protective equipment or medical supplies to healthcare workers.  Many business opportunities and transactions result in one participant learning detailed information about the other’s employees. A limited and narrowly-tailored no-poaching agreement that prohibits parties from directly soliciting employees introduced to each other as a result of a potential collaboration or transaction typically will qualify as reasonably ancillary to the overall business arrangement.

The DOJ’s October 2016 announcement that, prospectively, ‎it intends to proceed against naked no-poaching and wage-fixing agreements as criminal violations was significant.  Although the Sherman Act allows the DOJ to proceed either criminally or civilly against antitrust violators, before the HR Guidance, the DOJ had treated no-poaching and wage-fixing agreements between competitors as merely civil violations.9  Despite the warning in the HR Guidance, the DOJ has not yet brought any criminal cases involving no-poaching or wage-fixing agreements.  That could soon change if the Agencies uncover any evidence of “companies and individuals who use COVID-19 to harm competition that cheats payroll and non-payroll workers,” including “doctors, nurses, first responders, and those who work in grocery stores, pharmacies, delivery and distribution networks, and warehouses, among other essential service providers on the front lines of addressing the crisis.”10Visit our COVID-19 Resource Center often for up-to-date information to help you stay informed of the legal issues related to COVID-19.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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