United States: Hunting Season Begins: DOJ Warns Of Criminal Actions Against Companies With Agreements Not To Poach Competitors' Employees

Every American business, in every industry, faces the challenge of finding and retaining talented workers. In fact, employee talent is often a company's most valuable asset. As unemployment has declined, companies have found it increasingly difficult to locate topperforming talent to help them produce and grow. This is especially so in highly competitive markets such as Silicon Valley. And all too often, corporations invest time and resources in helping their employees develop their skills (i.e., invest in human capital), only to see them jump ship to a competitor when an offer of higher wages or better benefits comes along. In the face of these problems, companies may be tempted to come together and agree not to hire one another's staff. The Justice Department's Antitrust Division, however, generally views such agreements as illegal anticompetitive activity, and may even—as the DOJ has recently reiterated—subject companies to criminal prosecution with their attendant penalties.

DOJ Assistant Attorney General For Antitrust Predicts Criminal Enforcement Actions Coming Soon

Speaking at a Jan. 19, 2018, conference sponsored by the Antitrust Research Foundation at George Mason University, the DOJ's Assistant Attorney General for the Antitrust Division, Makan Delrahim, warned that the DOJ would soon launch criminal enforcement actions against companies that have so-called ''no poaching agreements'' with each other, whereby they agree not to solicit one another's employees. AAG Delrahim reported that the Antitrust Division has ''been very active'' in reviewing potential violations of the antitrust laws caused by these agreements and added that ''in the coming couple of months,'' the public ''will see some announcements'' of DOJ actions.

A History of DOJ Civil Actions Targeting No-Poaching Agreements

Though no-poaching agreements are hardly a new target for the DOJ, traditionally they have been a subject of civil rather than criminal litigation. For example, in September 2010, the DOJ filed a civil lawsuit against Adobe Systems Inc., Apple Inc., Google Inc., Intel Corp., Intuit, Inc., and Pixar in the U.S. District Court for the District of Columbia, alleging that the companies had entered into agreements to reduce their competition for highly skilled technical employees. Specifically, these companies agreed not to ''cold call'' one another's employees about job openings, which they defined as communicating in any manner with the employee unless the worker made the first move. The DOJ alleged that these agreements were ''facially anticompetitive'' and ''substantially diminished competition to the detriment of the affected employees who were likely deprived of competitively important information and access to better job opportunities.'' The defendants agreed to settle the DOJ's action prior to its filing a lawsuit, consenting to be enjoined from entering into agreements to ''refrain from soliciting, cold calling, recruiting, or otherwise competing for employees of the other person.''

Similarly, in December 2010, the DOJ filed a civil lawsuit against Lucasfilm Ltd, in the U.S. District Court for the District of Columbia, alleging that the company had reached an agreement with Pixar to reduce their competition for digital animators. In particular, the companies had agreed ''not to cold call, not to make counteroffers under certain circumstances, and to provide notification when making employment offers to each other's employees.'' Again, the matter was filed with a proposed settlement, under which Lucasfilm agreed to be enjoined from entering into agreements not to recruit another company's employees. Lucasfilm was also required to educate its officers and their successors on the terms of the settlement and annually report on its compliance.

Private Parties File Lawsuits Importantly, the DOJ's civil enforcement actions in these matters were followed by a civil class action lawsuits initiated by private parties that resulted in substantial financial settlements. Intuit and Pixar settled a follow-on class action to the DOJ's September 2010 lawsuit for a total of $20 million in October 2013, and Adobe, Apple, Google, and Intel settled collectively in that same class action for a total of $415 million in September 2015. As to the December 2010 DOJ lawsuit, Pixar and Lucasfilm settled a follow-on class action for a combined $100 million in January 2017.

It should be noted, however, that throughout these enforcement actions, the DOJ has continually acknowledged that some forms of non-solicitation provisions do not constitute illegal anti-competitive behavior. In fact, the final judgment in the Adobe matter described above expressly recognized that a ''no direct solicitation'' provision would be permissible if it was:

  1. contained within existing and future employment or severance agreements with the Defendant's employees;
  2. reasonably necessary for mergers or acquisitions, consummated or unconsummated, investments, or divestitures, including due diligence related thereto;
  3. reasonably necessary for contracts with consultants or recipients of consulting services, auditors, outsourcing vendors, recruiting agencies or providers of temporary employees or contract workers;
  4. reasonably necessary for the settlement or compromise of legal disputes; or
  5. reasonably necessary for (i) contracts with resellers or original equipment manufacturers; (ii) contracts with providers or recipients of services other than those enumerated in the preceding four paragraphs; or (iii) the function of a legitimate collaboration agreement, such as joint development, technology integration, joint ventures, joint projects (including teaming agreements), and the shared use of facilities.

And the DOJ has used the same language in judgments resolving no-poaching agreement cases as recently as its eBay action in 2014. So in short, nonsolicitation agreements necessary to effectuate other legitimate business agreements will likely not be considered illegal by the DOJ or the FTC. (Of course, many states—including most notably California—have their own robust bodies of law on non-solicitation agreements, which we simply flag here, but which most certainly will need to be considered.)

Criminal Liability Becomes Fertile Hunting Ground for Federal Antitrust Prosecutors

In October 2016, the DOJ issued Antitrust Guidance for Human Resources Professionals that expressly stated that ''agreements among employers not to recruit certain employees or not to compete on terms of compensation are illegal.'' The guidance further explained that ''it does not matter whether the agreement is informal or formal, written or unwritten, spoken or unspoken'' and that, in fact, even ''parallel behavior'' between companies could lead to an inference that such an agreement existed. Most importantly, however, the DOJ plainly stated that such agreements would be treated as criminal.

Going forward, the DOJ has made known its intentions to proceed criminally against naked wage-fixing or no-poaching agreements. For the DOJ, 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 core cartel conduct. Accordingly, the DOJ plans to 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 no-poaching 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.

Although the most recent DOJ pronouncement on anti-poaching agreements and other related practices speaks in bold terms with little to the imagination, it is not the first such pronouncement of its kind on the subject. In years past, the DOJ similarly emphasized the possibility of criminal enforcement actions against no-poaching agreements during the President Obama administration. As the then Acting Assistant Attorney General for Antitrust stated in a speech to the Golden State Antitrust, UCL and Privacy Law Institute, the DOJ approached these agreements ''the same way'' as other per se anticompetitive practices, ''using our professional judgment, and considering all the factors that ordinarily weigh on our discretion as criminal prosecutors.''

Some wondered whether no-poaching agreements would continue to be a criminal target for the DOJ under the President Trump administration, but the Acting Assistant Attorney General for Antitrust quickly made clear that they would in September 2017 remarks at the Global Antitrust Enforcement Symposium at Georgetown University. Addressing the need for continuity in antitrust enforcement to create ''clear, predictable boundaries'' for businesses, the Acting AAG singled out the Obama administration's 2016 decision to target nopoaching agreements for criminal rather than civil enforcement as an example of a policy that would be continued under the Trump administration.

Now the presidentially appointed, Senate confirmed AAG, Delrahim, too, emphasized continuity in his remarks in January 2018, characterizing the DOJ's 2016 guidance on no-poaching agreements as ''less a guidance and more of a reminder'' of a possibility of criminal enforcement that had always existed. He acknowledged, however, that the DOJ might limit itself to civil remedies as to anti-poaching conduct that occurred before the 2016 guidance, while treating subsequent conduct as criminal.

Conclusion

Should there be any remaining doubt about the DOJ's stance on no-poaching agreements that are not necessary to effectuate another, legitimate business agreement, the Assistant Attorney General's recent remarks should clear the air: the DOJ fully intends to pursue these agreements through criminal enforcement actions in the very near future. For corporations and the attorneys who advise them, this should serve as yet another reminder to reassess hiring practices and ensure that recruitment from competitors (or rather, a lack thereof) is not creating unnecessary criminal legal exposure. If in doubt, this is the time for in-house counsel to work with experienced counsel to create appropriate recruiting policies that don't violate the DOJ's views on no-poaching agreements. The bright line has now been drawn: Any violative anti-poaching policies after October 2016 expose employers to criminal punishment. In fact, for the DOJ Antirust Division, such enforcement actions might prove to be like shooting fish in a barrel.

Originally published in Bloomberg White Collar Crime Report

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