The U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC) issued joint guidance on Oct. 20, 2016, cautioning companies that they risk violating federal antitrust laws by entering into agreements with competitors regarding employment terms. Examples of such illegal agreements include “wage-fixing” and “no-poaching” agreements between competing employers. While offering direction to companies about compliance with federal antitrust requirements, the agencies underscored the fact that violators could be pursued both civilly and criminally. Further, based on the new guidance, it is clear that DOJ and FTC will look suspiciously at employers sharing information regarding terms and conditions of employment — such as industry wage surveys.
DOJ and FTC Take Aim at Wage-Fixing and No-Poaching Agreements
DOJ’s Antitrust Division and FTC, which are jointly responsible for enforcing federal antitrust laws, issued the new guidance as an aid to human resources (HR) professionals. In it, the agencies declare that HR professionals “likely” violate antitrust laws if they enter into agreements with competitors not to contact or “poach” each other’s employees. The agencies also state that the DOJ, which is the only antitrust regulator with criminal authority, will prosecute agreements between competitors to standardize wages or benefits and thus harm employees — known as “wage-fixing” agreements — as aggressively as they prosecute price-fixing, market allocation and bid-rigging agreements, which are the more traditional target of criminal antitrust enforcement.
DOJ and FTC note that these no-poaching and wage-fixing agreements are “per se illegal,” meaning the agencies consider them illegal even without evidence of anti-competitive impact. While acknowledging that such agreements may be lawful if related to a joint venture or other kind of business collaboration, the agencies declare that if an investigation uncovers that such an agreement was “naked” (i.e., “not reasonably necessary to a larger legitimate collaboration”), “DOJ 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 agencies also warn that, under federal antitrust laws, employees injured by such agreements could bring civil lawsuits for treble damages (i.e., three times the damage actually suffered by the employees).
Agencies Warn: Don’t Share Compensation Information With Competitors
DOJ and FTC also caution employers about sharing compensation information with competitors. While not per se illegal (like wage-fixing and no-poaching agreements), the agencies note that such information-sharing could be suspicious. Such information-sharing includes salary and benefits surveys conducted by industry associations and trade groups. Wage surveys are particularly common in the healthcare industry, where such information is often necessary to establish the fair market value of arrangements for fraud and abuse compliance purposes. Accordingly, the agencies previously issued guidance to this industry regarding how to avoid antitrust violations when sharing compensation information within the industry. DOJ’s and FTC’s new guidance now directs all employers to this previously issued guidance for insights on how to share information among competitors without running afoul of federal antitrust laws. To see this previous DOJ/FTC guidance, click here.
Recent Settlements of Silicon Valley Companies Accused of “No Cold Call” Agreements
While this guidance was just issued this month, both the DOJ and the FTC already have brought major enforcement actions against this kind of allegedly anti-competitive activity. For example, over the last five years, DOJ brought three civil enforcement actions against several technology companies, accusing them of entering into agreements not to “cold call” (and in some cases not to hire) each other’s employees. All of these enforcement actions resulted in consent judgments, though the companies did not admit liability. These investigations also resulted in a civil class-action lawsuit, which the companies agreed to settle for hundreds of millions of dollars. DOJ’s and FTC’s new guidance suggests that similar enforcement actions are likely to occur.
Important Implications for Employers
In addition to the agencies’ strong condemnation of wage-fixing and no-poaching agreements, employers should also consider the following implications of the new guidance:
Employers should not share information with competing employers regarding compensation and other terms and conditions of employment without first consulting with legal counsel. The DOJ’s and FTC’s previous guidance on information sharing is available here.
DOJ and FTC have made clear that information-sharing carries antitrust risk, including for parties sharing information prior to a proposed merger or acquisition. Companies need to develop strategies for avoiding this risk during the due-diligence phase of corporate transactions.
The guidance states that it “does not address the legality of specific terms contained in contracts between an employer and an employee, including non-compete clauses.”
Two companies may not compete in the same industry at all, but nonetheless compete for a certain type of employee – e.g., an IT professional – and thus could be considered “competing employers” for purposes of the antitrust laws and this guidance.
The agencies’ joint guidance is available here. In addition to this guidance, the agencies have issued an easy-reference guide titled “Antitrust Red Flags for Employment Practices,” available here.