US HR Professionals Receive Wage-Fixing and No-Poaching Agreements Guidance
On 20 October 2016, the U.S. DOJ and FTC issued antitrust guidance for human resource (HR) professionals and others who are involved in hiring and compensation decisions. In addition to stating the general, well accepted principle that agreements between employers not to poach each others' employees or to fix salaries or benefits may be unlawful antitrust violations, the guidance is particularly noteworthy in that going forward it warns of criminal prosecution by the DOJ against companies, HR professionals and other individuals for "naked" wage-fixing or no-poaching agreements that are per se illegal. It also encourages companies, HR professionals and other individuals to quickly report antitrust violations to the DOJ under its Corporate and Individual Leniency Policies. This policy marks a departure from past DOJ practices, in which no-poach agreements were addressed through civil enforcement actions. For example, in the recent past, the DOJ secured civil consent judgments against technology companies for agreements not to solicit employees across competing companies. The guidance also encourages reports to the DOJ through the Citizen Complaint Center and to the FTC through the Bureau of Competition's Office of Policy and Coordination.
The guidance is intended to provide HR professionals with information to prevent antitrust violations and report potentially unlawful activity to the DOJ. In particular, the guidance states employers that compete to hire or retain the same employees are "competitors" from an antitrust perspective, regardless of whether the companies make the same products or provide the same services. The guidance describes two types of antitrust violations:
- Wage-fixing agreements: agreements between employers to set wages, establish a pay scale, or to offer or not offer particular benefits or other terms of compensation; or
- No poaching agreements: agreements between employers not to solicit, recruit or hire each others' employees.
The guidance indicates that the DOJ intends to investigate criminally as hardcore cartel conduct "naked no-poaching and wage-fixing agreements that are unrelated or unnecessary to a larger legitimate collaboration between the employers." The guidance also discusses how the antitrust laws apply to the sharing of competitively sensitive nonpublic information between employers, such as compensation information, either directly or through third party entities.
The guidance includes a question and answer section that explains how the antitrust laws apply to various scenarios, including agreements not to recruit or hire, hiring a common consultant to communicate a common pay scale, agreeing to a wage cap for certain employees, reporting anticompetitive agreements to the DOJ under its Corporate Leniency Policy, conducting surveys about industry wages, and attending professional conferences. It also provides a quick reference guide that all HR professionals can utilize.
The guidance clearly sets forth general, well-established principles:
- An 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 decision-making with regard to wages, salaries, or benefits, terms of employment, or even job opportunities.
- Any company, acting on its own, may make decisions regarding hiring, soliciting or recruiting employees, but should not communicate its policies or decisions with other companies hiring the same types of employees.
- While agreements merely to share information are not per se illegal and are ordinarily subject only to civil investigation and enforcement, they too may be illegal when they are likely to have an anticompetitive effect. Interactions with other employers, therefore, must not result in an agreement not to compete for employees or to fix particular terms of employment.
- It is possible to design and carry out information exchanges in ways that conform with the antitrust laws, such as the common request by companies to third party analysis firms for surveys of aggregated salary and job related data. For example, the guidance states an information exchange may be lawful if:
- a neutral third party manages the exchange,
- the exchange involves information that is relatively old,
- the information is aggregated to protect the identity of the underlying sources (i.e., it is not company specific), and
- enough sources are aggregated to prevent competitors from linking particular data to an individual source.
- Even if the participants are parties to a proposed merger or acquisition, or are otherwise involved in a joint venture or other collaborative activity, there is antitrust risk if they share information about terms and conditions of employment.
- In the course of determining whether to pursue a merger or acquisition, a buyer may need to obtain limited competitively sensitive information. Such information gathering may be lawful if it is in connection with a legitimate merger or acquisition proposal and appropriate precautions are taken.
The guidance also encourages companies and HR professionals that have questions about sharing information or otherwise collaborating with competitors to seek a business review letter from the DOJ or an advisory opinion from the FTC.