November 17, 2016
Long ago, the human resources (“HR”) department may have felt like the one department about which the Legal Department did not need to worry about from an antitrust perspective. The tides shifted and any sense of comfort legal departments may have had were surely shaken by a series of high-profile antitrust class actions and government investigations into alleged no-poaching and wage fixing agreements between competitors and the ensuing consent agreements and settlements by major corporations in recent years. The stakes for legal – and HR – departments were recently raised to DEFCON 5, however, with the release of joint guidance from both federal antitrust agencies that antitrust violations in the employment context can result in severe consequences, including criminal prosecution not only for the company, but for individual HR professionals.
On October 20, 2016, federal antitrust agencies jointly released a formal guidance document “intended to alert human resource (HR) professionals and others involved in hiring and compensation decisions to potential violations of the antitrust laws.”1 In their Antitrust Guidance For Human Resource Professionals (“Guidance,” available at https://www.justice.gov/atr/file/903511/download) the Department of Justice and the Federal Trade Commission (the “Agencies”) warned that “[a]n agreement among competing employers to limit or fix the terms of employment for potential hires may violate the antitrust laws if the agreement constrains individual firm decision-making with regard to wages, salaries, or benefits; terms of employment; or even job opportunities.” Lawyers, managers, and HR professionals alike should familiarize themselves with the Guidance, summarized below, as the Agencies have made clear that they will be pursuing future antitrust violations in the HR context with vigor. While both the FTC and DOJ can handle civil investigations, the Guidance highlights the DOJ’s intent to exercise its power to prosecute criminally. Importantly, in a press release accompanying the Guidance, the agencies emphasized that:
A Preliminary Note of Caution: The Term “Competitors” Construed Broadly …
The government will take an expansive view of “competing” employers in this context. The Guidance notes that:
Companies that compete to attract employees are considered competitors under the antitrust laws, regardless of whether those companies ultimately create the same goods, or provide the same services.3
What Types of Agreements Raise Antitrust Concerns?
The Guidance counsels HR professionals to “avoid entering into agreements regarding terms of employment with firms that compete to hire employees.”4 The Guidance further cautions that “it does not matter whether the agreement is informal or formal, written or unwritten, spoken or unspoken” and that actual agreement need not be proven, but instead “evidence of discussions and parallel behavior . . . may lead to an inference that the individual” has agreed.5
The Guidance focuses on two types of agreements that the agencies deem to be per se illegal – “No-Poaching” and Wage-Fixing agreements. A wage-fixing agreement involves companies agreeing with individual(s) at another company about employee salary or other terms of compensation.6 This might include agreeing to compensate employees at a specific level, or agreeing to compensate employees within a given range.7 A no-poaching agreement involves an HR professional agreeing with individual(s) at another company to not solicit or hire that other company’s employees.8
The agencies have successfully pursued a series of civil enforcement actions targeting both types of agreements. For instance, in one example of a wage-fixing agreement, the DOJ filed a civil enforcement action against the Arizona Hospital & Healthcare Association for establishing a uniform rate schedule that hospitals would pay for per diem nurses.9 In another case, the FTC brought an action against the Council of Fashion Designers of America for attempting to reduce fashion model compensation.10 Both cases resulted in consent judgments.11
Under its consent judgment the Arizona Hospital & Healthcare Association was prohibited from imposing certain contract terms in the future, including references to bonus payments or a common rate structure, and was further required to establish an antitrust compliance office.12 Similarly, under its consent judgment the Council of Fashion Designers of America was prohibited from “[r]aising, lowering, fixing, maintaining or stabilizing the price, terms or other forms or conditions of compensation paid for modeling or modeling agency services,” and was required to keep detailed minutes of business meetings to be made available to the FTC upon request.13 HR professionals should take note of the Guidance not only to avoid similar consent judgments, but also to avoid the types of civil litigation that can often come in the wake of a DOJ or FTC investigation. The Arizona Hospital & Healthcare Association, for example, ultimately was part of a $22 million civil settlement that came on the heels of the DOJ’s investigation.
The DOJ has also brought three civil enforcement actions against several technological companies that allegedly entered into no-poaching agreements, contending in each that the competing companies had agreed not to cold call each other’s employees.14 In two of the three, the DOJ further alleged that at least one company had agreed to limit the hiring of a competitor’s employees.15 All three cases resulted in consent judgments.16 One consent judgment, which prohibited eBay Inc. from “attempting to enter into, entering into, maintaining or enforcing any agreement with any other person to in any way refrain from, requesting that any person in any way refrain from, or pressuring any person in any way to refrain from hiring, soliciting, cold calling, recruiting, or otherwise competing for employees of the other person,” provides an illustrative example.17
The Guidance condemns both types of agreements as per se illegal under the antitrust laws – meaning “if the agreement is separate from or not reasonably necessary to a larger legitimate collaboration between the employers, the agreement is deemed illegal without any inquiry into its competitive effects.”18 The Guidance expressly states that “[l]egitimate joint ventures (including, for example, appropriate shared use of facilities) are not considered per se illegal under the antitrust laws.”19 But provides no further explanation of what “legitimate” means, or when an agreement may be “reasonably necessary” to a larger collaboration between competitors.
While the Agencies would not categorically condemn all forms of non-solicitation/non-hire agreements, their inquiries into these practices will be highly fact specific. It will be critical for companies to limit such agreements, often found in the merger and acquisition or joint venture contexts, to circumstances where such agreements are narrowly tailored to serve legitimate business reasons.
The Exchange of Employee Information Can Also Raise Antitrust Concerns
In addition to condemning actual or implicit agreements not to compete for employees, the Guidance cautions that “sharing information with competitors about terms and conditions of employment can also run afoul of the antitrust laws.” 20 Sharing such information could serve as evidence of an implicit illegal agreement and could be “subject to civil antitrust liability” if the exchanges have, or are likely to have, “an anticompetitive effect.”21
Danger Zone: M&A and Joint Venture Conduct
Employee salaries and benefits obviously can be a large component of a company’s costs and as such is a key topic of due diligence in the ordinary course of a proposed merger, acquisition, or joint venture. While acknowledging that not all information exchanges are illegal, the Guidance warns that even in M&A circumstances, there is antitrust risk if parties share information about their terms and conditions of employment. Information gathering in the due diligence context often requires necessary gathering of competitively sensitive information – but it should be conducted in a limited fashion with appropriate precautions.
Danger Zone: Industry Associations and Organizations
Further, managers and HR professionals should take care in the context of industry organizations or trade associations. Referencing the DOJ’s case against the Utah Society for Healthcare Human Resources Administration, the Guidance emphasizes that “evidence of periodic exchange of current wage information in an industry with few employers could establish an antitrust violation because, for example, the data exchange has decreased or is likely to decrease compensation.” 22 In the Utah Society case, the DOJ sued a society of HR professionals at Utah hospitals for conspiring to exchange nonpublic information about current and prospective wages about registered nurses. 23 The exchange, the Guidance notes, “caused defendant hospitals to match each other’s wages, keeping the pay of registered nurses in Salt Lake County and elsewhere in Utah artificially low.” 24
The Guidance goes on to answer the hypothetical question of whether an industry professional society can distribute a survey asking companies within the industry about current and future wages to collectively determine current and future trends in industry wages. The Guidance answers that it may be unlawful for HR professionals to solicit or respond to such inquiries from competitors, and/or for the association to distribute company-specific information about past, current and future wages. The Guidance notes that “[c]ompetitors’ exchange of nonpublic, company-specific information about current and future wages may violate antitrust law, unless certain survey procedures are followed to mitigate the risk of competitive harm.”25
The Guidance suggests safeguards that may facilitate a lawful information exchange including:
- a neutral third party manages the exchange,
- the exchange involves only information that is relatively old,
- the information is aggregated to protect the identity of the underlying sources, and
- enough sources are aggregated to prevent competitors from identifying the data from any particular source. 26
Before participating in any industry survey of wage or other employee information, consult antitrust counsel to be sure the survey in question satisfies agency guidance on the antitrust treatment of information exchanges amongst competitors.27
“Red Flags” for Managers and HR Professionals
Along with the Guidance document itself, the agencies prepared an index card sized list of “red flags” specifically designed for managers and HR professionals (available here https://www.justice.gov/atr/file/903506/download).
Cautioning that their list is not exhaustive, nor does it necessarily mean an antitrust violation has occurred, the agencies specifically caution individual employees that they could be personally liable for civil or criminal antitrust violations if they:
- 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 non-professional settings.
- Receive documents that contain another company’s internal data about employee compensation.
- U.S. Dep’t of Justice & Fed. Trade Comm’n, Antitrust Guidance for Human Resource Professionals (“HR Guidance”) (Oct. 20, 2016), at 1.↵
- Press Release, Department of Justice, “Justice Department and Federal Trade Commission Release Guidance for Human Resource Professionals on How Antitrust Law Applies to Employee Hiring and Compensation,” Oct. 20, 2016.↵
- HR Guidance, supra note 1, at 2.↵
- Id. at 3.↵
- U.S. v. Ariz. Hosp. and Healthcare Ass’n, No. CV07-1030-PHX (D. Ariz. filed May 22, 2007).↵
- Council of Fashion Designers, 120 F.T.C. 817 (1995).↵
- Final Judgment, U.S. v. Ariz. Hosp. and Healthcare Ass’n, No. CV07-1030-PHX (D. Ariz. Sept. 12, 2007), available at https://www.justice.gov/atr/case-document/file/487106/download; Council of Fashion Designers, 120 F.T.C. 817 (1995).↵
- Final Judgment, U.S. v. Ariz. Hosp. and Healthcare Ass’n, No. CV07-1030-PHX (D. Ariz. Sept. 12, 2007), at 4-5, 9.↵
- Council of Fashion Designers, 120 F.T.C. 817, 823 (1995).↵
- U.S. v. eBay Inc., No. CV12-58690-PSG (N.D. Cal. filed Nov. 16, 2012); U.S. v. Lucasfilm Ltd., No. 1:10-CV-02220 (D.D.C. filed Dec. 21, 2010); U.S. v. Adobe Systems, Inc., et al., No. 1:10-CV-01629 (D.D.C. filed Sept. 24, 2010).↵
- HR Guidance, supra note 1, at 4.↵
- Final Judgment, U.S. v. eBay Inc., No. CV12-58690-PSG (N.D. Cal. Sept. 2, 2014), available at https://www.justice.gov/atr/case-document/file/494626/download; Final Judgment, U.S. v. Lucasfilm Ltd., No. 1:10-CV-02220 (D.D.C. June 3, 2011), available at https://www.justice.gov/atr/case-document/file/501626/download; Final Judgment U.S. v. Adobe Systems, Inc., et al., No. 1:10-CV-01629 (D.D.C. Mar. 17, 2011), available at https://www.justice.gov/atr/case-document/file/483426/download.↵
- Final Judgment, U.S. v. eBay Inc., No. CV12-58690-PSG (N.D. Cal. Sept. 2, 2014), at 2.↵
- HR Guidance, supra note 1, at 3 (emphasis added).↵
- Id. at 4.↵
- Id. at 4-5.↵
- U.S. v. Utah Soc’y for Healthcare Human Res. Admin., et. al., No. CV94C282G (D. Utah filed Mar. 4, 1994), available at https://www.justice.gov/atr/case-document/file/514706/download.↵
- HR Guidance, supra note 1, at 5.↵
- Id. at 9.↵
- Id.at 5.↵
- See Statement 6 of Statements of Antitrust Enforcement Policy in Health Care, available at https://www.justice.gov/atr/statements-antitrust-enforcement-policy-health-care.↵