Criminal Prosecutions over No-Poaching Arrangements Are Coming

Wage-fixing is targeted, too

By Robert Nichols, Daniel Hemli and Jackie Java April 5, 2018
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Criminal Prosecutions over No-Poaching Arrangements Are Coming

​Leaders at the U.S. Department of Justice's (DOJ's) antitrust division warn that their attorneys are moving toward criminal charges against companies over agreements among businesses that fix salaries or promise not to poach each other's employees, so HR should prepare. Until recently, this conduct exposed companies only to civil liability.

Makan Delrahim, the new assistant attorney general in charge of the antitrust division, has pointedly alluded to criminal prosecutions of employers. Delrahim has identified highly skilled engineers and other technical professionals as examples of employees who might be the subjects of illegal no-poaching arrangements. His remarks have highlighted a new area of potential criminal liability for companies and individuals that HR professionals need to carefully consider.

HR Antitrust Guidance

In a recent speech, Delrahim emphasized the Antitrust Guidance for Human Resource Professionals, which was jointly published in October 2016 by the DOJ and the Federal Trade Commission to help employers avoid potential antitrust violations, including unlawful wage-fixing and no-poaching arrangements. The HR antitrust guidance made clear that "naked" wage-fixing or no-poaching agreements among employers, whether entered into directly or through a third-party intermediary, are illegal under antitrust laws.

The guidance also stated that the DOJ would consider bringing criminal felony charges against participants in wage-fixing and no-poaching agreements, and would target both companies and individuals.

Wage fixing is when two or more employers reach an agreement about employee salary or other elements of compensation (which can include job benefits such as gym membership, parking, transit subsidies and meals), either at a specific level or within a range. No poaching is when employers agree not to solicit or hire each other's employees. The reference to a naked wage-fixing or no-poaching agreement means that if the agreement is separate from or not reasonably necessary to a larger, legitimate transaction or collaboration between the employers, such as an acquisition or joint venture, the agreement is deemed illegal without any inquiry into its competitive effects or business justifications.

Importantly, these unlawful agreements need not be explicit or written; they can be informal and verbal.

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Before issuing the guidance, the antitrust agencies sued companies for entering into wage-fixing and no-poaching agreements, but those cases all ended in civil settlements that only forced the companies to stop the unlawful conduct. The prospect of criminal prosecutions raised in the HR antitrust guidance drew widespread attention, but no such prosecutions were brought during the Obama administration.

Trump Administration

When President Donald Trump took office in January 2017, it was unclear whether the Republican administration, with new leadership at the federal antitrust agencies, would continue to pursue this policy regarding wage-fixing and no-poaching agreements. Delrahim's recent comments leave no doubt that the current administration intends to actively pursue criminal prosecutions.

Additionally, while Delrahim has noted that enforcement in recent years has been limited to civil actions and has primarily focused on Silicon Valley, his public comments made plain that criminal prosecutions could impact businesses in any industry.

Key Takeaways

HR professionals therefore should implement safeguards to prevent inappropriate agreements or discussions with other businesses seeking to hire the same types of employees. Key takeaways:

  • Do not enter into understandings or other agreements about employee compensation, employee benefits, or other terms of employment with companies that compete for the same types of employees, even if those companies don't offer the same products or services.
  • Do not enter into arrangements, however informal, to refuse to solicit or hire other companies' employees.
  • Even if employers do not agree explicitly to fix compensation or other terms of employment, merely sharing information about terms and conditions of employment can run afoul of the antitrust laws. For example, evidence that companies have exchanged current wage information in an industry with few employers has been found to establish an antitrust violation when those information exchanges led to decreased compensation. On the other hand, such information gathering may be lawful if it's connected to a legitimate merger or acquisition, e.g., to assist the buyer with its due diligence.

While a company, acting on its own, may make decisions regarding compensation as well as hiring, soliciting or recruiting employees, the company should not communicate its policies to other businesses competing for similar employees.

Robert "Bob" Nichols is an attorney with Bracewell LLP in Houston. Daniel Hemli is an attorney with Bracewell in New York City. Jackie Java is an attorney with Bracewell in Washington, D.C. 

 

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