Seyfarth Synopsis: True to his word, the Assistant Attorney General for the Antitrust Division of the U.S. Department of Justice has announced the first of a number of anticipated no-poach enforcement actions. While this was a civil proceeding, the Department of Justice has said that in some cases it may treat the conduct as criminal. Many executives and HR professionals are unaware that the antitrust laws apply to the employment marketplace. Thus, if they have not done so already, employers should consider the implementation of compliance programs to make sure that appropriate employees are aware of these developments and risks.
In January 2018, Makan Delrahim, the Assistant Attorney General for the Antitrust Division, said that the Department Of Justice (“DOJ”) had been very active in reviewing potential antitrust violations resulting from agreements among employers not to compete for workers. (We previously reported on this announcement here and here.) He said that he was “shocked” at how many there were and that in the coming months there would be announcements of enforcement actions. He also mentioned that if the conduct occurred or continued after issuance of the October 2016 joint DOJ and Federal Trade Commission (“FTC”) Antitrust Guidance for Human Resource Professionals (the “Joint Guidance”), the DOJ may treat those agreements as criminal.
On April 3, 2018, the first of these announcements was made. See “Justice Department Requires Knorr and Wabtec to Terminate Unlawful Agreements Not to Compete for Employees,” available here ("News Release”). The DOJ advised that it filed a complaint in which it alleged that Knorr-Bremse AG (“Knorr”), Westinghouse Air Brake Technologies Corporation (“Wabtec”) and Faiveley Transport S.A., before it was acquired by Wabtec, entered into agreements not to compete for each other’s employees (“no-poach” agreements). The DOJ contends that these were naked agreements – i.e., not reasonably necessary for a separate, legitimate business transaction or collaboration – and amounted to per se violations of Section 1 of the Sherman Act. With the Complaint DOJ also filed a Competitive Impact Statement; Explanation of Consent Decree; and Stipulation and Proposed Final Judgment. (See News Release.)
As noted, Mr. Delrahim stated that there were a number of these investigations ongoing, and in the News Release said that this Complaint was “part of a broader investigation by the Antitrust Division into naked agreements not to compete for employees.” So more of these announcements can be expected, and some may be announcements of criminal prosecutions.
Many Employees Are Unaware That the Antitrust Laws Apply to the Employment Market
Often some business executives and human resource professionals are unaware that the antitrust laws apply to the workplace. Executives who would never consider discussing prices with their competitors are unaware that discussing wages or salaries could have antitrust risks. Similarly, employee covenants not to compete are commonplace and many executives have them in their own employment contracts. So unless they have received specific training, an executive may be unaware of the antitrust risks associated with no-poaching agreements. And up until recently even the most elaborate and detailed antitrust compliance policies that strictly prohibited discussing prices rarely addressed the exchange of wage and salary information or prohibited no-poaching agreements.
But the DOJ and FTC have now greatly ratcheted up their enforcement efforts with respect to alleged restraints in the employment market. And with the DOJ and FTC taking the position that naked no-poaching agreements are per se unlawful and subject to criminal prosecution, the antitrust risks have been greatly increased — not to mention the costly class actions that are likely to follow any settlement with the DOJ.
Employers Should Investigate and Implement Compliance Programs
Thus, employers can no longer ignore the risk. If they have not already done so, employers should consider:
- Conducting an internal investigation to determine whether the company is engaging in the informal gathering of wage, salary or benefit information; or whether it has entered into any no-poach agreements. The investigation should be conducted or closely supervised by counsel with steps taken to preserve the attorney-client privilege. Also, if it is discovered that the company has engaged in any “naked” wage-fixing or no-poaching agreements on or after October 25, 2016, then criminal counsel should be consulted as DOJ may treat such conduct as criminal.
- Implementing an antitrust compliance program that ensures that all management and human resources personnel are aware that they cannot: (1) engage in a naked wage, salary or benefits-fixing agreement with any other unrelated employer; (2) engage in the gathering or exchange of wage, salary or benefits information without full compliance with the Joint Guidance; or (3) enter into any no-poach agreement without prior approval of counsel. Such individuals should, on an annual basis, be required to acknowledge in writing that they are aware of these prohibitions. Also, anyone hired or transferred into any of these positions should be made aware of these prohibitions at the time they are hired or transferred. These employees should also be advised that the DOJ is likely to treat naked wage/salary/benefit-fixing and no-poaching agreements as criminal and employees could be sentenced to prison for engaging in such conduct.