The Defendants, Knorr-Brense AG (KB) and Westinghouse Air Brake Technologies (Wabtech), are two of the world’s leading rail equipment suppliers, with worldwide 2017 revenues in excess of $7 billion and $3.9 billion, respectively. The DOJ alleged that the parties are each other’s top competitors in freight and passenger rail applications for the development, manufacture, and sale of such equipment. Thus, the effects of their improper cooperation in the hiring of employees would be particularly harmful to and result in more limited mobility, information, and bargaining leverage for any individual with an expertise in that industry. Specifically, Assistant Attorney General for Antitrust Makan Delrahim stated that the Defendants’ extensive, unlawful cooperation in aligning hiring decisions “deprived rail industry workers of important opportunities, information, and the ability to obtain better terms of employment.” The DOJ concluded this was a per se unlawful agreement under Section 1 of the Sherman Act.
The DOJ investigation found the no hire agreement to be well documented in the Defendants’ own documents and detailed it extensively in their complaint. For example, in one 2009 letter from a director of KB to a senior executive at Wabtech, the KB director noted “[Y]ou and I both agreed that our practice of not targeting each other’s personnel is a prudent cause for both companies. As you so accurately put it, ‘we compete in the market.’” Indeed, the DOJ found that both KB and Wabtech informed their outside recruiters to avoid soliciting employees from the other. Other documents suggested that senior hiring officials at one entity would not even consider a candidate from the other entity without the express permission of his counterpart.
The DOJ also found that this improper cooperation was monitored closely and deviations from it were treated harshly. In February 2016, for example, a member of the KB board complained to an executive officer at Wabtech regarding an external recruiter who solicited a KB employee for a Wabtech opening. In response, Wabtech instructed the outside recruiter to end recruitment of the candidate and refrain from soliciting any KB employees in the future.
The investigation also revealed that a third entity was privy to the same agreement – Faiveley Transport SA (Faiveley) – but because Faiveley was purchased by Westinghouse in 2016, their participation was subsumed into Westinghouse’s for purposes of the settlement. Details of KB’s no hire agreement with Faiveley, as well as Wabtech’s own no hire agreement with Faiveley are also explored in the complaint.
Importantly, it was Wabtech’s acquisition of Faiveley, which required merger clearance from the DOJ, that alerted the DOJ of the no hire agreement then among Faiveley, Wabtech, and KB. This is a stark reminder that documents or data that must be turned over in the course of merger investigations can have ripple effects beyond the particulars of the merger investigation itself.
Moving ahead, the DOJ has ordered KB and Wabtech to terminate all no hire agreements, and imposed stiff compliance obligations against KB and Wabtech. There are rigid notification measures in place, including among other provisions, that recruiters working with KB and Wabtech must be informed of the settlement. KB and Wabtech have agreed to mandatory reporting and cooperation provisions for at least the next five and possibly seven years. Notably, KB and Wabtech will not face any further civil actions or criminal charges in connection with any other no hire agreements that were disclosed to the DOJ in the course of this matter.
Companies with any such no hire agreements with competitors – be they written or informal – must be aware that the DOJ will investigate and prosecute these agreements. The DOJ has brought numerous lawsuits in this area in the last several years, and specifically stated in its press release that the complaint against KB and Wabtech was part of a broader sweep announced in January, which will likely result in additional enforcement actions. In the event your organization has any such agreements in place – be they written or informal – please reach out to your Goodwin point-of-contact for immediate assistance to assess potential exposure. The DOJ typically looks favorably on entities that self-report such potential violations. Finally, nothing in this DOJ action should be read to suggest that similar agreements reasonably necessary to achieve a legitimate business transaction or collaboration between or among companies are unlawful.
 United States Department of Justice, Press Release, Justice Department Requires Knorr and Wabtec to Terminate Unlawful Agreements Not to Compete for Employees (available online at https://www.justice.gov/opa/pr/justice-department-requires-knorr-and-wabtec-terminate-unlawful-agreements-not-compete) (April 3, 2018).