United States: New Guidance For HR Professionals Regarding Wage-Fixing And No-Poaching Agreements Highlights New Focus On Criminal Prosecutions And Raises New Concerns For Employer

In October, the Department of Justice ("DOJ") Antitrust Division and the Federal Trade Commission ("FTC" and collectively the "Antitrust Agencies") jointly issued new guidance for Human Resource professionals regarding agreements between competitors related to hiring and compensation of employees (the "Guidance").  The Guidance explains the Antitrust Agencies' position with regard to wage-fixing1 and no-poaching2 agreements between competitors in the employment marketplace.3  It also highlights the agencies' intent to shift toward criminal prosecution of companies and individuals who enter into these types of agreements when they are not ancillary to a legitimate business collaboration, such as a joint venture or a merger or acquisition.

The Guidance is particularly significant because it announces that the Antitrust Agencies will view standalone, or "naked," wage-fixing or no-poaching agreements between competitors in the employment marketplace as per se illegal regardless of whether they have an actual anti-competitive effect.  According to the Guidance, a "naked" wage-fixing or no-poaching agreement is an agreement that is separate from or not reasonably necessary to a larger legitimate collaboration between companies, such as a joint venture or a proposed merger or acquisition of one company, or a division thereof, by another company.  In the Guidance, the Antitrust Agencies compared such "naked" wage-fixing and no-poaching agreements to price-fixing agreements—which have traditionally been criminally investigated and prosecuted as hardcore cartel cases—and indicated that they view them as eliminating competition in the same irredeemable way.  Accordingly, the DOJ intends to investigate and, where appropriate, bring criminal, felony charges against companies and individuals it believes are guilty of violating antitrust laws by entering into such "naked" wage-fixing or no-poaching agreements.  This represents a shift in how the Antitrust Agencies have traditionally dealt with wage-fixing and no-poaching agreements and significantly increases the risk of antitrust violations for employers.

Moreover, while many Human Resources professionals likely already recognize that agreeing with another company to set wages can be a violation of antitrust laws, they may not realize the risks surrounding certain types of no-poaching agreements or the sharing of compensation-related information in situations that have not traditionally presented significant antitrust concerns.  As an initial matter, there have been several civil enforcement actions in recent years against high-profile technology companies that allegedly agreed not to hire each other's employees.  The Guidance discusses those cases and indicates that, going forward, the type of agreement at issue in those cases could subject the companies and individuals involved to criminal prosecution instead of civil enforcement actions.

The Guidance also raises concerns about the inclusion of no-poaching provisions in certain agreements between entities that might be competitors in the employment marketplace.  For example, it is common to include no-poaching provisions in settlement agreements of non-competition, non-solicitation and trade secrets cases involving two companies because the poaching of an employee is often part of what led to the litigation in the first place.  Moreover, the company whose employee went to work for a competitor often wants to avoid widespread exodus of employees to a competitor and, correspondingly, to ensure that the situation and the resulting damages do not repeat themselves in the future.  However, in the wake of this new Guidance, the inclusion of no-poaching provisions in settlement agreements raises serious concerns.  The Guidance itself does not address this specific situation and it is unclear how the Antitrust Agencies would view such a provision.  However, because there is generally no larger business collaboration between two companies that are parties to this type of litigation, there is risk that a no-poaching provision in a settlement agreement could be viewed as exactly the type of "naked" agreement that the Antitrust Agencies consider to be per se illegal.  Given this risk, great caution should be exercised when structuring settlement agreements and litigants should work with experienced counsel to address their underlying concerns in a way that avoids raising antitrust concerns.

The new Guidance also highlights the potential antitrust risks associated with sharing compensation information and entering into no-poaching agreements in connection with joint ventures and proposed mergers and acquisitions.  Sharing information regarding employee compensation and no-poaching agreements are common in these types of business deals and the Guidance acknowledges that this conduct is not per se illegal.  However, the Guidance clearly indicates that simply because two entities are parties to a joint venture or a proposed merger or acquisition, they will not necessarily be shielded from scrutiny.  Thus, it is crucial when engaged in these types of business collaborations that the parties take appropriate precautions.  For example, it is permissible to obtain competitively sensitive compensation information during the due diligence phase of mergers and acquisitions, but access to that information should be restricted as much as possible and the parties should ensure that no subsequent changes in compensation result from access to a competitor's compensation-related information.  The Guidance makes clear that even in the absence of evidence of an express, oral or written agreement to fix wages, discussions or information sharing between two competitors and subsequent parallel behavior, such as maintaining the same or similar wages, may lead to an inference of a wage-fixing agreement.  Similarly, employee non-solicitation or no-poaching agreements, which are frequently part of purchase agreements in mergers and acquisitions and joint venture agreements, should still be acceptable as long as they are reasonably necessary to the larger legitimate collaboration between the employers.  Care should be taken, however, not to overreach by making the scope of the agreement broader than necessary to the legitimate needs of the business deal.

In sum, employers should tread very carefully when sharing compensation-related information or entering into no-poaching agreements with anyone who could be a competitor in the employment marketplace, even when doing so in contexts that have not traditionally raised serious antitrust concerns.

Footnotes

1 A wage-fixing agreement is defined as an agreement—either oral, written or as evidenced by communications and parallel behavior—between two companies about employee salary or other terms of compensation, either at a specific level or within a range.

2 A no-poaching agreement is defined as an agreement—either oral, written or as evidenced by communications and parallel behavior—between two companies to refuse to solicit or hire the other company's employees.

3 The Guidance is limited to agreements between competitors in the employment marketplace and expressly states that it does not address the legality of provisions contained in contracts between an employer and an employee, including non-competition clauses.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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