Antitrust & Hiring: A Shock But Not A Surprise?

Antitrust & Hiring: A Shock But Not A Surprise?

Summary

On October 20, 2016, the Department of Justice and Federal Trade Commission issued their joint “Antitrust Guidelines for Human Resource Professionals” (“Guidelines”), which might come as a bit of a shock to the HR world, but not to the antitrust community. Hiring and compensation decisions can result in antitrust violations – and these Guidelines do not create any new law in that arena. The Guidelines do, however, provide a clear indication of what types of increasingly routine practices in the HR world skirt the edges of antitrust propriety, and which, therefore, require some rethinking before they become commonplace.

In some ways, the Guidelines state the obvious: agreements among competing employers to limit or fix the terms of employment for potential hires, where the ability of competitors to make an independent decision is constrained, are illegal and potentially subject to criminal prosecution. Similarly, certain discussions among competitors, while not criminally illegal, can trigger antitrust civil liability. The Guidelines attempt to help HR professionals and their counsel navigate the in-between. Most employment lawyers are not well-versed, if versed at all, in the nuances of antitrust law; this will force them to become so, or to bring their antitrust colleagues into the review process when questionable practices are being considered.

Competitors cannot agree not to compete with each other over anything, even to reduce costs, and this is just as true with respect to hiring employees as it is anything else. Employers should not be communicating the “how, why, when and where” of their HR and hiring practices to their competition. At the extreme level, employers cannot agree not to compete for employees,[1] and enforcement actions have been brought against those that have entered into such agreements. The antitrust enforcement arsenal includes civil actions and criminal prosecution; the former can result in treble (3X) damages, the latter in fines and jail time.

In order to avoid such harsh remedies, the Guidelines make it clear that agreements not to recruit certain employees or not to compete on the terms of compensation are illegal. It does not matter what form the agreement takes – any type of “wage-fixing agreement” or “no-poaching agreement” is illegal, per se, if it is a “naked restraint.”[2] If it is separate from, or not “reasonably necessary” to, some larger legitimate collaboration between competing employers, it is illegal and there is no inquiry or discussion at all as to its potential pro-competitive effects. Cited in the Guidelines is a civil enforcement matter involving most Arizona hospitals, which agreed to a uniform bill rate schedule for temporary and per diem nurses, resulting in a consent judgment. Similarly, in the last several years, as the Guidelines note, several tech companies’ use of “no poach” agreements was attacked. They had agreed not to cold call each other’s employees, and in at least two situations, they had agreed to limit hiring from competitors’ current employees. All cases resulted in consent judgments.

The Guidelines make clear where this is now headed: “Going forward, the DOJ intends to proceed criminally against naked wage-fixing or no-poaching agreements.” Investigations will be conducted and if such agreements are uncovered, 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.”

The Guidelines also address “information sharing” among competitors in the HR context. The agreement to share information is not itself per se illegal, but it can lead to anticompetitive behavior and outcomes, which can result in civil penalties. The Guidelines cite an example from Utah where the exchange of wage information led to hospitals matching wages; the artificially low compression of nurse wages which resulted was pursued as an antitrust violation. It, too, led to a consent judgment that restored the benefits of competition to the nursing employment arena. The Guidelines give instructions on how to safe-harbor such information exchanges, derived from similar and more specific guidance that has existed for years in the health care industry.

The Guidelines end with five pages of Q & A highlighting very specific situations that are responded to directly from the antitrust enforcement perch. In fact, every one of the very commonplace questions results in an answer of “no, don’t” or “no, you cannot” or “no, that’s a crime.” There is also a “list of red flags” hyperlinked in the Guidelines – things to watch out for in the HR world that may implicate antitrust issues. Nothing in this list should come as a surprise, but the intersection of antitrust and HR practices in such an “out loud” manner will likely come as a shock to business and employment lawyers alike in less notorious settings than the cases referenced in the Guidelines, especially when it comes to “no-poaching” agreements.

Saul Ewing LLP is poised to provide your HR Department with sophisticated advice and analysis of the potential antitrust implications certain desired business practices could cause, in light of the enforcement policies set forth in these new Guidelines.  For more information on these matters, please contact the author or the attorney at the firm with whom you are regularly in contact.

 


[1] Non-compete agreements restricting an employee from competing with her employer during and/or after employment are not dealt with in these Guidelines.

[2] In its simplest explanation, restraints in antitrust law are viewed as either “naked” or “ancillary.” The former essentially has no other purpose but to somehow restrain trade, while the latter, which is permissible, may have an effect on competition but it is really an afterthought to some agreement which has a large, competition-enhancing, benefit.

 

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