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Did you know that certain employment practices could violate antitrust law? This is the message to be gleaned from joint guidance recently issued by the Federal Trade Commission (FTC) and the Department of Justice (DOJ) Antitrust Division (collectively, the “Agencies”). The Agencies issued this guidance to remind employers that, like any other market, the job market is subject to antitrust laws. Not only could failure to abide by the antitrust laws result in significant civil penalties, but criminal prosecution is even a possibility!
One very important point that emerges from the guidance is the Agencies' very broad view of what employers are considered “competitors” for antitrust purposes: “[F]irms that compete to hire or retain employees are competitors in the employment marketplace, regardless of whether the firms make the same products or compete to provide the same services.” Thus the issue is the talent a company seeks, not its business!
For example, a computer professional could go to work for a financial services company to help operate the specialized financial software that it uses, or he/she could work for the computer company that develops the software in the first place and acts as a vendor to the financial services company. He/she could also work for an accounting firm or other consulting firm using this type of software. All these employers would consider themselves in entirely different markets. However, the Agencies would likely consider these companies to be competitors in the employment marketplace precisely because all of them could hire this same employee. Thus, if these companies agree not to target each others' employees/candidates, they may in fact violate antitrust laws.
'Wage-Fixing' and 'No-Poaching' Agreements Are Usually Illegal
The Agencies focus on a number of problematic practices. The first is a situation in which employers agree not to recruit designated employees or not to compete on compensation terms. The Agencies lump these into two broad categories — “wage-fixing” agreements and “no-poaching” agreements. Under wage-fixing agreements, multiple companies agree about “employee salaries or other terms of compensation, either at a specific level or within a range.” Under no-poaching agreements, by contrast, the companies agree not to solicit or hire the other company's employees.
Both types of agreements can violate antitrust laws, but “naked” agreements are per-se illegal. Naked agreements are those that are not attached to or reasonably necessary for a larger “legitimate collaboration” between the employers — they function as stand-alone attempts to limit compensation levels or avoid poaching employees. Therefore, these naked agreements will automatically be “deemed illegal without any inquiry into [their] competitive effects.” By contrast, legitimate joint venture agreements (the Agencies use the example of shared use of facilities) would not automatically be considered illegal.
Perhaps the most alarming revelation is that the DOJ intends to criminally prosecute those who enter into naked wage-fixing and no-poaching agreements. The rationale is that these agreements “eliminate competition in the same irredeemable way as agreements to fix product prices or allocate customers.” In other words, the Agencies view this as on par with “hardcore cartel conduct.” Forming such agreements could result in felony charges against the companies that have entered into the agreements and the specific individuals responsible for leading this effort.
Sharing Sensitive Employee Compensation and Related Information May Often Violate Antitrust Law
Other activity that, according to the guidance, would violate antitrust law is sharing information with competitors about the terms and conditions of employment. The Agencies will not criminally prosecute such activity because it is not per-se illegal. However, exchanging what the Agencies term “competitively sensitive” information can serve as evidence of an implicit illegal agreement. Such agreements can result in civil liability “when they have, or are likely to have, an anticompetitive effect.”
What would be considered “competitively sensitive” information? One example is current wage information: “[E]vidence of periodic exchange of current wage information in an industry with few employers could establish an antitrust violation because, for example, the data exchange has decreased or is likely to decrease compensation.”
The principal issue the Agencies are seeking to stamp out is exchange of information that would allow employers competing for the same employees to depress the market. For example, the Agencies cited a recent DOJ case in which a society of HR professionals at Utah hospitals conspired to exchange “nonpublic prospective and current wage information about registered nurses.” The issue was that this caused the nurses' pay to remain artificially low.
By contrast, exchanges in which the information provided is not useful for the purpose of depressing the labor market is not unlawful. The Agencies declared exchanges are lawful if:
What Can You Do?
What should you do if your company or one you are advising is engaging in anti-competitive practices? The guidance encourages companies and individuals to take advantage of the Leniency Policies offered by the DOJ. There is both a Corporate Leniency Policy and an Individual Leniency Policy (for those who approach the DOJ on their own behalf). Both policies allow those who come forward to admit involvement in illegal antitrust activities and cooperate with the DOJ's subsequent investigation to avoid criminal liability.
Under the Corporate Policy, leniency can be granted if the company reports the illegal activity before the DOJ begins to investigate. This is known as “Type A” leniency. The following six conditions must be met for Type A leniency:
There is also an alternative seven-factor test that can still allow for corporate leniency if the six conditions above cannot all be satisfied. This is known as “Type B” leniency. A number of the factors are the same as those in the test above. The factors required for Type B leniency are as follows:
Corporate directors, officers and employees can receive leniency if the corporation qualifies for the initial six-prong leniency test and if they admit their wrongdoing with candor and completeness and continue to assist the Division throughout the investigation. If the corporation does not qualify for leniency under the six-prong test, the corporate directors, officers, and employees who come forward with the corporation can still be “considered for immunity from criminal prosecution on the same basis as if they had approached the Division individually.” The requirements for leniency under the Individual Policy are as follows:
Only one corporation will be granted leniency for each conspiracy. This is sometimes referred to as a “First-in-the-Door” requirement. As a result, the DOJ states that time is of the essence when reporting antitrust activity. In fact, the DOJ has stated that, “On a number of occasions, the second company to inquire about a leniency application has been beaten by a prior applicant by only a matter of hours … and “there have been dramatic differences in the disposition of the criminal liability of corporations whose respective leniency applications to the [DOJ] were very close in time.”
Nevertheless, approaching the government to admit illegal antitrust activity is a major decision. There are many issues that must be considered. For instance, leniency applicants must be prepared to admit to criminal violations of antitrust laws. When considering this option, it is best to first seek the advice of experienced antitrust counsel. Detailed information regarding the DOJ's leniency programs can be found on “Updated FAQs.”
***** Robert G. Brody is the founding member of Brody and Associates, LLC, a Labor and Employment Law firm that represents management. Alexander Friedman is an associate with the firm. The views expressed in this article are those of the authors and not necessarily those of their clients or other attorneys at the firm.
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