A few years ago, a corporate client asked whether it could legally discuss and agree with a competitor not to recruit each other’s executives and managers (no-poach or no-hire, defined below). The client was not aware of a recent joint guidance issued by the Antitrust Division of the Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”) in October 2016[1], treating this type of conduct[2] as a potential criminal violation of the federal antitrust laws. Although efforts to restrict competition in the labor market faced civil liability in the past, the antitrust guidance opened up to the possibility of criminal prosecution of forms of collusion among competing (i.e. competing for workforce) employers. The threat of criminal charges proved not to be idle; in fact, a January 2021 DOJ indictment of two healthcare companies that agreed with competitors not to solicit each other’s senior-level employees has become the first criminal case for no-poach agreements under the 2016 joint guidance, making antitrust compliance in the labor and employment context a very sensitive issue.
According to the guidance, an 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.
The two main forms of collusion discussed in the antitrust guidance are “naked” (i) wage-fixing agreements, when employers or prospective employers agree not to compete on salary or wages, benefits, or other terms of employment, thus causing a compensation depression that would be in stark contrast with an open market economy, and (ii) no-poach or no-hire agreements, when employers or prospective employers agree not to solicit or hire away employees from one another. The guidance refers to naked agreements as separate from or not reasonably necessary to a larger legitimate collaboration between employers[3]. Therefore, unless an exception applies, these agreements are deemed per se illegal without any investigation into the extent of (anti)competitive effects, and both the company(ies) and the individual decision-makers could be subject to civil and criminal liability and penalties.
Up until recently, the DOJ had only brought civil actions against anticompetitive behavior in the labor and employment market. Fast forward to January 2021, the DOJ issued its first ever criminal indictment[4] for a no-poach agreement entered into by two affiliate Delaware companies which own and operate several medical facilities across the United States. The indictment[5] alleges that the companies agreed not to solicit senior-level employees from each other. Multiple conversations and emails setting the tone of the deal were recorded and exchanged by the executives, HR professionals and employees, including emails discussing talent who should not be approached proactively or recruited because of the agreement.
While the ultimate outcome[6] of the criminal prosecution has yet to be seen, the defendant companies could face a criminal penalty of up to $100 million, which could be increased based on the illegal gain or the loss suffered by the victims of the collusion if either amount is greater than the statutory maximum[7].
In light of the above, below are some general recommendations for executives, hiring professionals and company officials to prevent civil and criminal antitrust violations in hiring decisions.
1. Maintain an effective compliance program and a company code of conduct to prevent, detect and assess anticompetitive behavior and risks in hiring practices.
2. Properly educate and train anyone involved in hiring and employee retention decisions.
3. Conduct periodic monitoring, evaluations and testing of the company’s compliance program, its policies and procedures.
4. Avoid sharing sensitive information or engaging in inappropriate discussions, agreements or meetings with competitors regarding employees’ terms of employment and recruitment strategies, unless justified by a reasonable and legitimate purpose.
5. Distribute the DOJ’s Red Flags card[8] as a quick reference to help avoid anticompetitive conduct.
***The information provided in this post is for general information purposes only and is not intended to be and should not be taken or construed as legal advice. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney. No attorney-client relationship is formed.***
[1] Antitrust Guidance for Human Resources Professionals – October 2016 https://www.justice.gov/atr/file/903511/download
[2] There is no need for a written, formal agreement. A mere understanding based on informal conversations or emails may carry criminal liability.
[3] According to the Antitrust Guidance for Human Resources Professionals - October 2016, legitimate joint ventures for shared use of facilities may not violate the antitrust laws.
[4] A criminal indictment for wage-fixing, the first in its genre, was filed against an individual employer in December 2020. The first criminal charge for no-poach agreements was filed on January 5, 2021.
[5] https://www.justice.gov/opa/press-release/file/1351266/download
[6] At least two civil class actions have also been filed since the criminal charges brought by the DOJ.
[7] No individuals have been indicted at this time in the case at issue; however, generally speaking, the individuals directly or indirectly involved in the anticompetitive collusion in the labor market (executives, senior management, human resources professionals, third parties) may also face significant criminal penalties (up to $1 million) and serve up to 10 years jail time.
[8] https://www.justice.gov/atr/file/903506/download