Client Alert

DOJ to Investigate No-Poach and Wage-Fixing Agreements Criminally

By Lisl J. Dunlop, Co-Chair, Antitrust and Competition │ Sandra R. King, Chair, Employment and Labor

Why it matters: Human resources professionals beware. Conversations with others in your industry regarding employee pay, benefits and no-hire agreements could land you in jail.

So, you're at a gathering of human resources professionals in your industry—or you're having an informal lunch with someone from another company in your industry—and you find yourself comparing notes regarding the salary ranges for certain positions, or other aspects of the compensation and benefits you provide to certain employees at your company. Or you and this colleague figure that, with all of the money you're spending on recruiting and training of valued employees, a "gentleman's agreement" not to poach each other's employees is an appropriate and civilized way of preventing the companies from cannibalizing each other. This shouldn't be a big issue, right? Wrong. The federal government has recently confirmed that such actions can create serious liability for both you and your company.

Detailed discussion: Over the last few years there have been several high-profile federal government antitrust investigations and litigation involving companies in the healthcare, high-tech and entertainment industries regarding agreements concerning their employees. Until now the companies in question have been subject to civil prosecution and treble damages suits only. Under new Guidance released on October 21, however, the Department of Justice Antitrust Division has indicated that, going forward, it intends to investigate "naked no-poaching or wage-fixing agreements" criminally, in the same way that it currently approaches investigations of hard-core price-fixing and bid-rigging cartels. This raises the stakes considerably for human resources professionals and others in policing hiring and compensation practices.

The "Antitrust Guidance for Human Resources Professionals" (the "HR Guidance") issued by the Federal Trade Commission and DOJ outlines the government's intent to ensure free and fair competition among firms when hiring employees. The HR Guidance focuses specifically on two types of illegal agreements:

  • Wage-fixing agreements—agreements between companies regarding employee salaries or other terms of compensation, either at a specific level or within a range; and
  • No-poaching agreements—agreements between companies to refuse to solicit or hire the other company's employees.

Going forward such agreements will be viewed by the agencies as "per se" illegal (that is, considered automatically illegal regardless of the actual impact on competition) where they are entered into in a context that does not involve some larger, more formal collaboration between the employers, such as a joint venture, merger or other acquisition.

It should be noted that such agreements don't necessarily have to be express to be illegal. The agencies will also consider implied agreements among competitors where there is parallel behavior that suggests that the companies are mirroring each other's actions to reduce competition between them.

The Guidance does not address the legality of specific terms contained in contracts between an employer and its employees, including non-compete clauses.

The DOJ's avowed intent to prosecute such conduct criminally has consequences not only for the companies concerned. Under current DOJ policies aimed at holding individuals accountable for corporate wrongdoing (set out in the so-called "Yates Memo" authored by Deputy Attorney General Sally Yates in September 2015), the DOJ will look to bring criminal felony charges against the individuals responsible or involved in making the illegal agreements.

The HR Guidance provides specific examples of scenarios that should be avoided. One of the areas of focus is on the dangers of informal contacts between HR professionals at competing companies, including matters that should not be discussed, as well as the illegality of "gentlemen's agreements" that may be put in place by senior executives or others to prevent recruiting of employees from competitors.

The HR Guidance also targets the sharing of sensitive information about terms or conditions of employment between competitors. Although information-sharing agreements are unlikely to be prosecuted criminally, they can have anticompetitive effects, and may be subject to civil antitrust enforcement. Examples of problematic information exchanges include the periodic exchange of current wage information in an industry with few employers, which could depress compensation. The risk of information sharing can still exist even if the participating companies are involved in negotiating a transaction, or in a joint venture together.

The Guidance encourages the implementation of best practices and safeguards to avoid criminal prosecution. In particular, there are several ways to manage information exchanges to avoid antitrust concerns. For example, the agencies previously identified an "antitrust safety zone" for participation in written surveys of wages, salaries or benefits in the healthcare context. Consistent with the healthcare guidelines, the HR Guidance notes that information exchanges may be permissible if they are conducted under similar conditions:

  • Having a neutral third party manage the information exchange;
  • Exchanging only historical, noncurrent information;
  • Aggregating information to protect the identity of the underlying sources; and
  • Ensuring that sufficient sources are included to prevent competitors' identifying the source of particular information.

Along with the HR Guidance, the antitrust agencies published a list of "Antitrust Red Flags for Employment Practices." The Red Flags document provides a shorthand list of bullet points identifying key areas on which to avoid agreement or discussion with industry competitors, and also provides DOJ and FTC contact information for individuals to report suspicious behavior. Examples of Red Flags to avoid:

  • Agree with another company about employee salary or other terms of compensation, either at a specific level or within a range.
  • Agree with another company to refuse to solicit or hire that other company's employees.
  • Agree with another company about employee benefits.
  • Agree with another company on other terms of employment.
  • Express to competitors that you should not compete too aggressively for employees.
  • Exchange company-specific information about employee compensation or terms of employment with another company.
  • Participate in a meeting, such as a trade association meeting, where the above topics are discussed.
  • Discuss the above topics with colleagues at other companies, including during social events or in other nonprofessional settings.
  • Receive documents that contain another company's internal data about employee compensation.

As with other criminal antitrust provisions, individuals and corporations are able to self-report and obtain lenient treatment for their cooperation. The DOJ has a well-established program that will grant a pass to the first company to report a violation, or fine reductions for other companies involved in conduct they already know about. The HR Guidance and list of Red Flags are clearly intended to encourage reports of potentially illegal agreements in the employment context and focus enforcement resources in this area.



pursuant to New York DR 2-101(f)

© 2024 Manatt, Phelps & Phillips, LLP.

All rights reserved