Alert October 27, 2016

Antitrust Authorities to Prosecute Criminally Anticompetitive Hiring and Compensation Agreements

Summary

The United States federal antitrust authorities announced last week that companies who have in place formal or informal hiring or compensation agreements with competitors may now face criminal prosecution. This is a notable departure from the agencies’ previous enforcement efforts in these areas which were prosecuted civilly, and means that those involved in establishing or facilitating such agreements now face the prospect of incarceration, in addition to the already substantial fines and penalties imposed today. Human resource executives or others involved in hiring or compensation decisions who may have such agreements in place with their competitors should immediately consider ceasing participation in these agreements. 

The dual antitrust enforcement agencies in the United States, the Federal Trade Commission (FTC) and Department of Justice Antitrust Division (DOJ), recently announced that the DOJ may begin to prosecute criminally all agreements between or among competitors that set hiring or compensation terms. This departure from the previous civil-only approach has far-reaching consequences for companies of all sizes. It is imperative that human resource executives or others involved in hiring or compensation decisions are made aware of this change in policy.

Importantly, in announcing this change, the FTC and DOJ also provided specific guidance to companies to avoid establishing such potentially unlawful agreements. Specifically, the FTC and DOJ have indicated that the following types of agreements with another company now pose the potential for criminal antitrust penalties.

  • Setting employee salary at specific levels or ranges;
  • Setting employee compensation terms at specific levels or ranges;
  • Preventing the solicitation or hiring of the other company’s employees (these are often referred to as “no-poaching agreements”);
  • Establishing identical employee benefits;
  • Suggesting that companies will not compete aggressively for talent;
  • Facilitating the exchange of company-specific information about employee compensation terms;
  • Using trade association meetings, social events, or other non-professionally related gatherings as a guise to discuss these topics; or
  • Permitting the exchange of documents that contain internal data regarding employee compensation.[1]

These agreements need not be formal or documented. A “wink and a nod” could suffice for purposes of creating exposure. The guidance from the FTC and the DOJ also makes clear that even parallel behavior could lead to an inference of an unlawful agreement. Indeed, under current antitrust doctrine, even inviting an entity to participate in such an agreement – even if the other party refuses – could be a violation of the antitrust laws.

The decision to investigate these agreements for possible criminal violations of the antitrust laws has far-reaching consequences for companies of all sizes. Of most concern is the fact that the executives involved now face the possibility of incarceration, as well as individual fines. The companies involved will further face the possibility of substantial fines, as well as treble damages from any resulting plaintiffs filing suit, not to mention the reputational damage that will affect the hiring and retention of talent for years to come. 

Although all industries are affected, the FTC and DOJ have focused their enforcement efforts on the high-tech and healthcare spheres. The DOJ in particular undertook a string of enforcement actions against some of the most prominent companies in the country including Adobe, eBay, Google, LucasFilm, and others. The violations in these cases included the companies agreeing not to “cold call” each other’s employees, as well as agreeing to limit the hiring of employees to those who were not presently employed by another competitor. The healthcare industry has also seen its behavior under the microscope with the FTC and DOJ undertaking actions against entities that set uniform hourly rates, made collective decisions to boycott, and for exchanging non-public prospective and current wage information of healthcare providers. Companies in these areas should be especially alert for any potentially unlawful agreements with their competitors. 

Please consult the Goodwin Antitrust team immediately if you believe your organization has in place any such agreements. We are ready to assist.  

 


[1] Not all information exchanges are unlawful. Companies interested in developing lawful information exchanges should consult counsel for specific guidance but generally, the information exchange will be viewed as permissible if it reflects dated data and is aggregated and anonymized in such a way so as to protect the identity of any one contributing source.