Wage-Fixing, Nonpoaching Agreements Between Companies Are Illegal

HR may be criminally liable for antitrust violations

By Roy Maurer Oct 25, 2016
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The federal government stated unequivocally that it is against the law for employers to agree to fix wages or to not hire one another's workers. Those agreements—whether entered into directly or through a third party such as a trade association—are illegal under antitrust laws, and violations could lead to criminal prosecution against individuals and employers.

The Antitrust Division of the Department of Justice (DOJ) and the Federal Trade Commission (FTC) released guidance Oct. 20 to alert HR professionals to potential violations of antitrust laws, including entering into nonpoaching or wage-fixing agreements with competing companies.

"The messages are simple—workers are entitled to the benefit of competition for their services, and firms should avoid reaching agreements with competing employers that would fix wages or other terms of employment, or prevent them from competing for workers," the FTC said. "HR professionals often are in the best position to ensure that their companies' hiring practices comply with the antitrust laws. In particular, HR professionals can implement safeguards to prevent inappropriate discussions or agreements with other firms."

The guidance states that an individual likely is breaking the law if he or she reaches an agreement with someone at another company:

  • About employee compensation, benefits or other terms of employment, either at a specific level or within a range.
  • About refusing to solicit or hire the other company's employees.

Even discussions—without an oral or written agreement—to limit employee compensation or recruiting may lead to an investigation.

"This is a major policy shift," said Phillip Warren, a partner in the San Francisco office of Covington & Burling and a 30-year veteran of the DOJ's antitrust division. "The government has filed civil antitrust cases involving hiring and compensation, but it has never filed a criminal case in this area. This change makes it important for companies to promptly audit their human resources policies and practices to identify any potentially illegal conduct and to take quick action.

"Early discovery of potential problems will put companies in the best position to formulate an optimal strategy―to mitigate risk or even avoid criminal exposure altogether," he added.

The guidance outlined additional actions to guard against, including:

  • Exchanging, giving or receiving company-specific information about employee compensation or terms of employment with another company.
  • Participating in a meeting, such as a trade association meeting, where wage-fixing or nonpoaching is discussed.
  • Discussing these topics with colleagues at other companies, including during social events.

Acceptable Agreements

Not every interaction with a competitor creates antitrust risk. Agreements which are part of a larger legitimate collaboration between employers, or are "reasonably necessary" to a legitimate arrangement or subject to a labor antitrust exemption, will be fine, according to the guidance. Examples of acceptable agreements include collaborations such as joint ventures, shared use of facilities, consulting services, outsourcing vendors, and mergers or acquisitions.

The guidance recommended that employers and individuals report illegal agreements to the DOJ under its corporate and individual leniency policies, which provide immunity from criminal charges for the first organization or person to report the antitrust offense and to cooperate in the investigation.

"The question of whether a company should apply for leniency is extremely complex," Warren said. "It requires a careful balancing of potential risks and benefits."

But such a decision needs to be made quickly, he said. "Only one member of an illegal antitrust conspiracy can be awarded leniency. Delay in uncovering potential problems and formulating a quick response could mean the difference between facing criminal charges or not."

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