Thursday, October 20, 2016, the Antitrust Division of the U.S. Department of
Justice and the Federal Trade Commission issued joint guidance for human
resource (HR) professionals to help educate and inform them about how the
antitrust laws apply to employee hiring and compensation. Within this guidance,
the Justice Department for the first time announced that it will hereafter
proceed criminally against naked wage-fixing and no-poaching agreements.
recent years, agreements between companies that inhibit employees' rights to
work have drawn increasing attention from the Justice Department. With
employment mobility at its peak, several companies have attempted to reach
agreements with their direct industry competitors that could limit employee
mobility. The Justice Department has investigated such agreements and, in
several cases, has brought civil suits against the companies involved. For
example, in 2010, the Justice Department filed a high-profile civil suit
against several high-tech companies-including Apple, Adobe, Google, Intel,
Intuit, and Pixar-which had entered into agreements not to solicit each other's
employees. Similar suits followed against Lucasfilm and eBay, and there also were
follow-on civil class actions filed on behalf of the affected employees.
Justice Department determined that the companies reached "facially
anticompetitive" or "naked" agreements that eliminated a
significant form of competition to the detriment of employees who lost access
to information and better job opportunities. It concluded that the non-solicit
agreements between the companies were naked restraints of trade that were per
se unlawful under federal antitrust laws. In the government's view, the primary
impact of these agreements was to depress salaries artificially, as employees
could not leverage offers from one company to move to another.
these agreements were not "ancillary to any legitimate
collaboration," such as a joint venture or research project.
civil suits culminated in settlements that broadly prohibited the companies
from entering, maintaining, or enforcing any agreement that in any way
prevented any person from soliciting, cold calling, recruiting, or otherwise
competing for employees. The companies also were required to implement
compliance measures to guard against these practices. Based on the Justice Department's
recent guidance, however, no-poaching agreements will now be investigated as criminal
antitrust violations with serious monetary penalties and the possibility of
Justice Department scrutiny of this area is not new, its announcement of
criminal enforcement is. It is significant that the Justice Department has
decided to proceed criminally for the first time against wage-fixing and
no-poaching agreements. Elizabeth Prewitt, a partner in Hughes Hubbard's antitrust
practice and former longtime Justice Department litigator, was quoted today by
Global Competition Review about the Justice Department's announcement, and
explained that [t]he DOJ has historically limited criminal antitrust
prosecutions to a small subset of violations which it considers to be severe
and well-known by the public to be illegal. This decision evidences the Justice
Department's view that no-poaching and wage-fixing agreements hamper
competition in the same anticompetitive ways as agreements to fix the price of
goods, rig bids, and allocate customers or market share-conduct that has
traditionally been subject to criminal prosecution.
also has been significant government action on the federal and state levels,
over the past year, concerning non-compete agreements that employers enter into
with their employees rather than with each other (as is the case with
no-poaching and wage-fixing agreements). In March of this year, the U.S.
Department of the Treasury released a report on the economic effects and policy
implications of non-compete agreements and proposed directions for reform. The
report noted that these non-compete agreements often cover low-wage workers
unlikely to possess trade secrets that employers have a legitimate interest in
protecting, as well as that workers are often poorly informed about the
existence, details, and implications of their non-compete agreements. In May,
the White House also released a report about non-compete agreements, suggesting
that they limited job mobility, worker bargaining power, entrepreneurship, and
wages. The White House instructed executive departments and agencies to propose
new ways of promoting competition and providing consumers and workers with
information they need to make informed decisions.
the state level, in June, New York Attorney General Eric Schneiderman announced
a high-profile settlement with legal news provider Law360, ending a multi-year
investigation into the company's labor practices. In the settlement, Law360
agreed to end its use of mandatory non-compete agreements for its staff, which
prohibited them from working for any competitor for a year after leaving the
company. Several states also have recently enacted or proposed legislation
intended to address the issues raised by non-compete agreements.
recent attention to both no-poaching and non-compete agreements suggests that
the entire arena of competition restraint via agreements relating to employment
is becoming a focus of the government.
is important to note that, notwithstanding the Justice Department's new policy
of criminal liability, no-poaching agreements can still be entered into
lawfully when they are not "naked restraints" on trade. A "naked
restraint" is generally an agreement that is considered to be explicitly anticompetitive
without any procompetitive justifications. Although the Justice Department has
not provided comprehensive guidance about the types of conduct that would or
would not fall into the "naked restraint" category in the employment
context, the "naked restraint" label would not attach to ancillary
restraints made in pursuit of a legitimate commercial interest and tailored to
it in terms of geography, job function, product group, and duration. For
example, the Justice Department will not criminally prosecute no-poaching
agreements that are related or necessary to a larger legitimate business
collaboration or the settlement of a theft of trade secrets dispute. Therefore,
we would not expect a carefully drafted and narrow no-poaching agreement to be
attacked criminally if it was entered into in the context of a joint venture or
settlement that necessitates such an agreement. By contrast, a shared desire
among competitors to hold down costs or preserve for each of them the benefits
of their own employee training would not qualify as a legitimate reason for a
no-poaching agreement. Even when there is no criminal exposure, agreements that
restrain employees' freedom of movement and the ability to bargain may still be
subject to civil lawsuits.
the wake of this announcement, we recommend that all of our clients review and,
if necessary, strengthen their existing antitrust compliance programs and their
existing and future non-compete and non-solicitation agreements. It is
particularly important that HR professionals are educated on these issues and
ensure that their companies' hiring practices comply with the antitrust laws.
The potential criminal sanctions are severe-both companies and individuals can
be prosecuted for violations of U.S. antitrust law, punishable by a fine of up
to $100 million for corporations and $1 million for individuals (or more, under
certain circumstances), and the maximum jail sentence is ten years. Given the
extraterritorial reach of U.S. antitrust law, this policy shift presents a risk
to companies and individuals located outside of the U.S. as well.
effective compliance program and careful drafting of agreements relating to
employment competition are critical means for a company to deter or detect
potential violations. The Antitrust Division of the Justice Department has a
Leniency Program, which allows corporations and individuals to report their own
violations and cooperate in the Division's investigation of the violations reported.
As recent enforcement actions demonstrate, a corporation that is the first to
report an antitrust violation, and meets other conditions of the Division's
Leniency Program, can qualify for full immunity from fines, full immunity from
prosecution for its cooperating employees and executives, as well as potential
mitigation of civil damages.
Hubbard has extensive experience in counseling clients on antitrust compliance
issues, and our lawyers have developed antitrust compliance programs and
materials for many Fortune 500 companies. We have advised clients on how to
prepare no-poaching and non-compete agreements that do not run afoul of
antitrust laws and litigated major unfair competition cases involving
noncompete agreements, non-solicitation agreements, and alleged employee theft
of trade secrets.