In late October, the FTC and Department of Justice (“DOJ”) issued guidance for human resources (“HR”) professionals regarding the applicability of antitrust law to hiring and compensation decisions. According to the FTC, “HR professionals are often in the best position to ensure their companies’ hiring practices comply with the law and this guidance will help educate and inform them about how the antitrust laws apply to the employment arena.”
FTC and DOJ Issue Joint-Guidance to HR Pros Over Applicability of Antitrust Laws to Employment Decisions
The joint-guidance issued by the FTC and DOJ “is intended to alert human resource (HR) professionals and others involved in hiring and compensation decisions to potential violations of the antitrust laws.” At the outset of their antitrust guidance for HR professionals, the FTC and DOJ set forth 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.”
Antitrust Laws Serve as the Backdrop for a Competitive Marketplace
The FTC and DOJ begin the substantive part of their antitrust guidance to HR professionals by explaining that “[t]he antitrust laws establish the rules of a competitive marketplace.” The guidance states that competition among employers is just as vital as competition among sellers, and that “competition among employers helps actual and potential employers through higher wages, better benefits, or other terms of employment.”
In the eyes of the FTC and the DOJ, “firms that compete to hire or retain employees are competitors in the employment marketplace,” which is true, “regardless of whether the firms make the same products or compete to provide the same services.” As a result, it is illegal for competing firms, whether explicitly or implicitly, to agree not to compete against one another, even if those competing firms are driven by a desire to cut costs. Accordingly, the FTC and DOJ advise HR professionals to “take certain steps to ensure that interactions with other employers competing with them for employees do not result in an unlawful agreement not to compete on terms of employment.”
Agreements Not to Recruit Employees or Not to Compete on Terms of Compensation are Illegal
The first step proposed by the FTC and DOJ for HR professionals is to “avoid entering into agreements regarding terms of employment with firms that compete to hire employees.” Specifically, the FTC and DOJ state that an individual is “likely” in violation of the antitrust laws if: 1) “agrees with individual(s) at another company about employee salary or other terms of compensation, either at a specific level or within a range (so-called wage-fixing agreements)”; or 2) “agrees with individual(s) at another company to refuse to solicit or hire that other company’s employees (so-called “no poaching” agreements).” Under antitrust laws, the FTC and DOJ say “[i]t does not matter whether the [above-described] agreement is formal or informal, written or unwritten, spoken or unspoken.”
The FTC and DOJ tell HR professionals that “[n]aked wage-fixing or no-poaching agreements … are per se illegal under the antitrust laws,” and that “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.” However, the FTC and DOJ do admit that “[l]egitimate joint ventures … are not considered per illegal.”
Examples of DOJ and FTC Enforcement Actions Over Non-Compete Agreements
By way of examples of illegal agreements entered into amongst competitors, the guidance identifies several enforcement actions pursued by the DOJ in the past few years. These civil enforcement actions include a civil enforcement action against the Arizona Hospital & Healthcare Association, as well as several other civil enforcement actions against the likes of eBay and Intuit, Lucasfilm and Pixar, and Adobe, Apple, Google, Intel, Intuit, and Pixar. Beyond those actions brought by the DOJ, the guidance also reports that the FTC has brought two cases regarding competition for employment, one against Debes Corp, and the other against the Council of Fashion Designers of America.
DOJ Intends to Aggressively Criminally Prosecute Against Naked Wage-Fixing and No-Poaching Agreements
The guidance makes clear:
Going forward, the DOJ intends to proceed criminally against naked wagefixing or no-poaching agreements. These types of agreements eliminate competition in the same irredeemable way as agreements to fix product prices or allocate customers, which have traditionally been criminally investigated and prosecuted as hardcore cartel conduct. Accordingly, the DOJ will criminally investigate allegations that employers have agreed among themselves on employee compensation or not to solicit or hire each others’ employees. And if that investigation uncovers a naked wage-fixing or nopoaching agreement, the DOJ may, in the exercise of its prosecutorial discretion, bring criminal, felony charges against the culpable participants in the agreement, including both individuals and companies.
Avoid Sharing Sensitive Info With Competitors
The FTC and DOJ next advise HR professional to “[a]void sharing sensitive information with competitors.” The guidance tells HR professionals that “[s]haring information with competitors about terms and conditions of employment can also run afoul of the antitrust laws,” and that “[e]ven if an individual does not agree explicitly to fix compensation or other terms of employment, exchanging competitively sensitive information could serve as evidence of an implicit illegal agreement.” The FTC and DOJ admit that, “[w]hile agreements to share information are not per se illegal and therefore not prosecuted criminally,” those agreements may form the basis for “civil antitrust liability when they have, or are likely to have, an anticompetitive effect.”
The guidance goes on to note that “[e]ven without an express or implicit agreement on terms of compensation among firms, 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.” For example, the DOJ says that it sued the Utah Society for Healthcare Human Resources Administration over “conspiring to exchange nonpublic prospective and current wage information about registered nurses.” The DOJ contends that “[t]he exchange 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.”
Not All Exchanges of Information Are Illegal, FTC and DOJ Admit
Even still, the FTC and DOJ acknowledge that “not all information exchanges are illegal,” and that “[i]t is possible to design and carry out information exchanges in ways that conform with the antitrust laws,” so long as the information exchange is: 1) managed by a neutral third-party; 2) the exchange relates to old information; 3) the information is aggregated to protect the identity of the sources of that information; and 4) enough sources are aggregated to prevent competitors from tying certain to data to any individual source of information.
FTC and DOJ Provide Individual Guidance on Info Sharing
The guidance tells HR professionals that, if they have more questions regarding the exchange of information among companies, they can review the FTC’s and DOJ’s “guidance to the healthcare industry on when written surveys of wages, salaries, or benefits are less likely to raise antitrust concerns.” Likewise, companies considering sharing specific information are advised to consult the DOJ’s Business Review Process, as well as the FTC’s advisory opinion service, which is similar to the DOJ’s aforementioned business review process.
FTC and DOJ Set Forth Q&A Regarding Specific Circumstances HR Pros May Encounter
The guidance next sets forth a series of questions and answers regarding specific circumstances that HR professional may encounter in the hiring and compensation settings, including informal conversations amongst competitors about employees “jumping ship,” wage-fixing and/or wage-capping agreements, no-poaching agreements, benefit-slashing agreements, distributing current and future wage surveys, and things to watch out for and avoid at professional conferences. In conjunction with these questions and answers, the guidance directs HR professionals to a list of red flags that those “professionals … should look out for in employment settings.”
Seeking Legal Assistance and Reporting Violations
Finally, the FTC and DOJ’s guidance instructs HR professionals to seek legal assistance if the “HR professionals have questions regarding whether particular conduct violates the antitrust laws,” and that those professionals should also report any potential violations of the antitrust laws. The FTC and DOJ tell HR professionals that they should ask the following questions when describing their complaint: 1) What are the names of companies, individuals, or organizations that are involved; 2) In what manner have these companies, individuals, or organizations potentially violated the federal antitrust laws; 3) What examples can you give of the conduct that you believe may violate the antitrust laws; 4) Who is affected by this conduct; 5) How do you believe competition may have been harmed; and 6) What is your role in the situation.
FTC and DOJ Remind Companies of Potential Criminal Liability
The FTC and DOJ also remind HR professionals that “[v]iolations of the antitrust laws can have severe consequences,” including that the DOJ “could bring a criminal prosecution against individuals, the company, or both,” the FTC and/or DOJ could bring civil enforcement actions, and, “if an employee or another private party were injured by an illegal agreement among potential employers, that DOJ/FTC party could bring a civil lawsuit for treble damages (i.e., three times the damages the party actually suffered).” The guidance concludes by stating:
With respect to potential criminal violations, in particular, it can be beneficial to report personal involvement in an antitrust violation quickly. Through the Division’s leniency program, corporations can avoid criminal conviction and fines, and individuals can avoid criminal conviction, prison terms, and fines, by being the first to confess participation in a criminal antitrust violation, fully cooperating with the Division, and meeting other specified conditions. Additional information about the leniency program is available here.
Will Adherence to Guidance Ensure Avoidance of a Civil Enforcement Action and/or a Criminal Action?
The FTC’s guidance for HR professionals regarding the applicability of antitrust law to employment decisions comes at about the same time as the FTC’s guidance for companies that have suffered a data breach, which FTCLaw.com reported on last week. Both of these sets of guidance are no doubt a welcome sight for companies that are engaged in competitive hiring practices, or those companies facing a data breach. Even still, it remains to be seen whether adherence to such guidance will help companies avoid civil enforcement actions, or even criminal liability, in the future. However, the fact that the DOJ and FTC have at least issued guidance on the subject gives HR pros insight into the thinking of both agencies. That is a good start.
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