DOJ, FTC Announce Plans to Criminally Prosecute Employers That Enter into Wage-Fixing or No-Poaching Agreements

by Franczek Radelet P.C.
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Franczek Radelet P.C.

In the fiercely competitive market for talent, human resources personnel and recruiters inevitably feel the competing pressures of offering compensation packages that are attractive to potential employees and keeping costs under control. To find the appropriate balance, they may feel tempted to share information with their counterparts at competing organizations and/or reach agreements with them not to recruit one another’s employees.

Responding to this issue, last month the U.S. Department of Justice (DOJ) and Federal Trade Commission (FTC) issued Antitrust Guidance for Human Resource Professionals (Guidance), which provides valuable insight into conduct these agencies consider illegal. The guidance describes two types of antitrust violations, which are typically illegal regardless of whether they have an anticompetitive effect:

  • Naked wage-fixing agreements, in which individuals from different companies make an agreement about employee salaries or other terms of compensation, either at a specific level or within a range; and
  • Naked no-poaching agreements, in which individuals from different companies agree not to solicit or hire one another’s employees.

The most well-known civil enforcement actions brought by the DOJ to date have been against some of the country’s largest technology companies (including Google, Apple, and Intel), which entered into “no-poach” agreements to limit their cold calling and hiring of each other’s employees.

What is notable about the Guidance is the DOJ’s announcement that it will now proceed with criminal investigations and prosecutions of those entering into such agreements. The DOJ regards naked wage-fixing and no-poach agreements as anticompetitive in the same way as agreements to fix prices or allocate customers, which have been criminally investigated and prosecuted as anticompetitive cartel conduct. Both companies and individual employees may be liable for antitrust violations in such situations.

The Guidance also explains that exchanging sensitive information – even absent an explicit agreement – may serve as evidence of an implicit illegal agreement. Although such agreements to share information are not subject to criminal prosecution, they may be subject to civil antitrust liability when they have or are likely to have anticompetitive effects.

Helpfully, the Guidance offers suggestions on how companies may lawfully share information, and provides a link to a list of “red flags” to help HR professionals and other managers avoid engaging in anticompetitive activity.

One type of “no-poaching” agreement that the Guidance does not address are agreements between staffing agencies and their clients. Such agreements often limit the ability of a client to independently hire personnel that are provided by the staffing agency with certain time and geographic limitations. State courts have varied in their treatment of such agreements. For instance, the Wisconsin Supreme Court held in 2002 that a no-hire agreement was unenforceable because the employee was not a party to the contract, and this was a restriction on the employee’s individual right and freedom to contract. In contrast, the Illinois Supreme Court held in 2004 that a narrowly drawn restriction that prevented a client from hiring only those employees provided by a staffing agency for a year after the termination of the agreement governing assignment of the employee to the client was a reasonable restriction on trade that was justified by the legitimate business interests of the staffing agency, notwithstanding the fact that the employee was not a party to the agreement. To date, courts do not appear to have analyzed such no-hire agreements under antitrust principles.

Although staffing agency arrangements are not specifically addressed by the Guidance, the Guidance does explain that employers that compete to hire or retain the same employees are “competitors” from an antitrust perspective, regardless of whether the companies make the same products or provide the same services.  Since staffing agencies and their clients could be said to “compete” for employees, “no-poaching” agreements with staffing agencies are not necessarily immune from antitrust scrutiny.

Although the Trump administration could roll back this stepped-up enforcement agenda, the DOJ’s position fits within established antitrust principles and maintaining no poaching agreements or sharing wage information could create exposure through private lawsuits regardless of how aggressive the incoming administration pursues antitrust enforcement. HR professionals are in a position to implement safeguards to ensure that their companies do not run afoul of antitrust laws when recruiting employees, and should seek the advice of counsel before entering into an agreement that could restrict employee recruitment or sharing employee compensation information with other employers.  

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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