HR Professionals and Naked Antitrust Agreements
In a 2015 BNA Antitrust & Trade Regulation Report article called Human Resources: The Next Antitrust Frontier?, Susanna P. Torpey and Ryan D. Fahey discussed the “emerging area of antitrust exposure that is forcing practitioners and in-house counsel in the know to reevaluate new pockets of antitrust risk arising not from the sales force, but rather from the Human Resources Department.” Torpey and Fahey stated that:
What some employers may see as innocuous agreements not to recruit one another’s prized employees, to limit disruptions across their industry, to compete ‘‘fairly’’ for recruits, or merely to clamp down on cold-calling, may subject those companies both to criminal sanctions and massive civil liability running into the hundreds of millions of dollars.
To avoid these pitfalls, Torpey and Fahey suggest that companies take steps such as providing clear termination events for hiring restrictions, notifying affected employees that the company’s contracts with other companies may contain restrictions, and documenting the legitimate business justifications for their policies.
Now the Federal Trade Commission (FTC) and the Antitrust Division of the US Department of Justice (DOJ), which jointly enforce the US antitrust laws, have issued Antitrust Guidance for Human Resource Professionals to tell managers and HR professionals how antitrust law applies to employee hiring and compensation.
According to the FTC’s Press Release:
HR professionals are often in the best position to ensure their companies’ hiring practices comply with the law and this guidance will help educate and inform them about how the antitrust laws apply to the employment arena.
Employees suffer if companies that would normally compete against each other for employees instead (1) agree to fix wages and other terms of employment or (2) agree not to “poach” each other’s employees. When comparing competition among employees with competition among sellers in an open marketplace, the antitrust guidance says that “competition among employers helps actual and potential employees through higher wages, better benefits, or other terms of employment.”
The Justice Department will criminally investigate such agreements—which, it says, “eliminate competition in the same irredeemable way as agreements to fix the prices of goods or allocate customers”—if the agreements are “naked” (that is, separate from or not reasonably necessary for a larger legitimate collaboration between the employers).
Criminal antitrust violators face penalties of up to $100 million for a corporation and $1 million for an individual, along with up to 10 years in prison.
Agreements Not to Compete/Recruit Are Illegal
HR professionals should avoiding entering agreements regarding terms of employment with firms that compete to hire employees, whether the agreement is informal or formal, written or unwritten, spoken or unspoken.
According to the FTC/DOJ guidance, an individual is likely breaking antitrust laws if he or she:
- agrees with another company about employee salary or other terms of compensation, either at a specific level or within a range (wage-fixing agreements), or
- agrees with another company to refuse to solicit or hire that other company’s employees (“no poaching” agreements)
Companies Should Not Share Sensitive Information with Competitors
Companies should take care not to communicate their policies to other companies expecting to hire the same types of employees. Even without an agreement, the mere exchange of competitively sensitive information could serve as evidence of an implicit illegal agreement.
The antitrust guidance reminds HR professionals that firms competing to hire or retain employees are competitors in the marketplace, even if they don’t make the same products or provide the same services.
The FTC and DOJ are available to offer assistance to companies that are considering sharing specific information, or otherwise collaborating with competitors regarding compensation or other terms of employment.
For more information on the antitrust treatment of information exchanges among competitors, the guidance directs readers to the FTC’s 1996 guidance to the healthcare industry.
FAQs and Red Flags
The guidance contains questions and answers to help explain some of the situations that HR professionals may encounter. For HR personnel whose organizations are already involved in an illegal agreement, one answer says to report the conduct to the DOJ under the Leniency Program. Under that program, the first entity to report an antitrust offense, and cooperate with the investigation, will not be criminally charged.
The guidance also links to a quick reference card with a list of employment practice antitrust red flags.
HR professionals should take note of this new document and the FTC and DOJ’s intention to start charging people and companies criminally for antitrust employment issues. As the National Law Review notes, “The new guidance sends a clear signal that the agencies will continue to be vigilant in policing wrongful conduct in this area, particularly with respect to no-poaching and wage-fixing agreements, which the DOJ can be expected to pursue criminally.”
As we’ve stated before, it’s essential for organizations to be familiar with general antitrust law principles. Antitrust law violations can affect the workplace and result in criminal charges for companies and employees who make a wrong move. Employers who create a culture of compliance will make sure that their HR departments are aware of antitrust issues
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