- U.S. Antitrust Enforcers Release Antitrust Guidance for HR Professionals and Announce Intent to Proceed Criminally Against Naked Wage-Fixing and No-Poaching Agreements
- November 16, 2016 | Authors: David C. Kiernan; Craig A. Waldman; Margaret A. (Peggy) Ward; H. Kristie Xian
- Law Firms: Jones Day - San Francisco Office ; Jones Day - Washington Office
- The U.S. Department of Justice Antitrust Division (DOJ) and the Federal Trade Commission (FTC) recently released joint antitrust 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 information exchanges about these subjects. Most notably, the guidance states that the 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 and should prompt renewed attention to these issues in compliance training. Potential criminal treatment of HR activities also raises complex questions regarding when companies and individuals should consider taking advantage of the DOJ’s leniency program.
Potential criminal prosecution of agreements on recruitment of employees and terms of employment
Wage-fixing agreements seek to limit or fix employee salary, compensation, or benefits, either at a specific or general level. An illegal agreement also could 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. Ultimately, defendants settled the class action for $435 million. More recently, class actions involving no-poaching agreements have been brought against companies in other industries, including major animation studios (Disney, LucasFilm, Pixar, DreamWorks) and Duke Medical School. A class action complaint was filed last month 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 DOJ/FTC guidance, "naked" wage-fixing and no-poaching agreements among employers will be viewed as per se illegal under antitrust laws, that is, condemned without the need to show actual anticompetitive effects. A "naked" agreement is one that is not part of or 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. However, 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 exercise its prosecutorial discretion and pursue criminal charges against culpable individuals and companies.
The guidance concludes with a question and answer section that includes several hypothetical scenarios, but leaves unresolved important questions:
- What factors will DOJ take into account in exercising its prosecutorial discretion to pursue criminal or civil charges challenging alleged no-poach or compensation agreements?
- Will DOJ take the position that the policy applies to conduct that has already occurred, since it states that it will pursue criminal investigations "going forward"?
- Will DOJ undertake criminal investigations of non-solicitation or compensation-related agreements that are related to some underlying collaboration between employers (e.g., a joint R&D agreement), but may be overbroad in some way (e.g., the scope of employees covered by or the duration of the agreement)?
The agencies also provided guidance on permissible HR information exchanges among employers. While noting that "agreements to share information are not per se illegal, and therefore not prosecuted criminally," the DOJ/FTC guidance states that information exchanges "may be subject to civil antitrust liability when they have, or likely to have, an anticompetitive effect." Thus, for example, evidence that two or more companies periodically agreed to share current or future wage and other compensation information in an industry could violate antitrust laws.
Not all information exchanges are illegal. Companies can implement safeguards to obtain limited competitively-sensitive information in the course of merger or acquisition discussions. In these and other cases where there is a legitimate basis for the information exchange, companies can lessen antitrust concerns by following certain procedures, such as:
- hiring a neutral third party to manage the exchange of nonpublic, company-specific information,
- aggregating information such that recipients cannot identify the particular source,
- aggregating sources to prevent competitors from linking particular data on compensation or benefits to an individual employer, or
- exchanging relatively old compensation information.
The antitrust guidance for human resource professionals can be found on the DOJ’s website. For more guidance on competitor information exchanges, employers should refer to the agencies’ Statements of Antitrust Enforcement in Health Care, which have been applied outside of the health care industry and which the agencies have endorsed in their guidance. Our prior alerts provide further information on employment agreements and DOJ enforcement actions against corporate executives and employees.