Antitrust Authorities Warn Human Resources Professionals about Illegal Agreements That Restrain Competition for Employees
On October 20, 2016, the United States Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”) issued “Antitrust Guidance for Human Resource Professionals” regarding antitrust prohibitions of agreements that restrain competition for employees’ services. (Click the following links for a copy of this guidance, and the accompanying press release.) The guidance addresses business-to-business agreements regarding employee non-hiring and recruitment, and is intended to both remind HR professionals that these agencies have challenged such types of understandings over the past several years, and warn employers that the DOJ, in particular, intends to begin prosecuting at least some employers criminally in the months and years ahead.
The overall message is that employees are entitled to all of the benefits of competition for their services and that the FTC and DOJ are now increasing scrutiny of all practices that may impede those benefits. Some examples are formal or informal “wage-fixing,” “anti-poaching” and exchanges of compensation information generally. Over the course of the past several years, both agencies have challenged some of these practices in a variety of industries, particularly within the high-tech and healthcare sectors, as “per se” antitrust violations. These government actions have been followed by private class actions seeking treble damages, which in some cases, have resulted in judgments for hundreds of millions of dollars. As noted above, the DOJ now intends to treat at least some of these practices as felony criminal violations of the antitrust laws.
As the DOJ and FTC guidance highlights, “firms 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”; it is “unlawful for competitors to expressly or implicitly agree not to compete with one another, even if they are motivated by a desire to reduce costs”; and agreements among any such employers “not to recruit certain employees or not to compete in terms of compensation are illegal.”
Despite the “absolutist” nature of many such statements in the guidance, the agencies acknowledge that (a) there are some defensible ways to share employment information; (b) some employee non-solicitation or related understandings may be lawful if “reasonably necessary to a larger legitimate collaboration between the employers”; and (c) in the course of considering a proposed merger or acquisition, the potential buyer “may need to obtain limited” employment compensation information from a competitor and this “may be lawful if it is in connection with a legitimate merger or acquisition proposal and appropriate precautions are taken.” Nothing in the new guidance, however, clarifies or exemplifies how an employer might safely rely on these exceptions.
Another area where these issues frequently arise is in threatened or actual litigation between competitors related to employee raiding and hiring, particularly where the former employer of the employees at issue seeks protection against future hiring actions by those employees’ new employer. For example, it is not uncommon for the former employer to ask, as part of a resolution, that the new employer refrain from recruiting and/or hiring the former employer’s remaining employees, over a certain time period and in a certain market. The DOJ and FTC have made it clear that such agreements are unlawful. Instead, we believe that employers in these situations should explore restrictions that, at most, require one employer not to employ the employees of another where doing so would violate a lawful restrictive covenant agreement to which the employee(s) at issue are bound. We note that the agencies’ guidance does not address the legality of specific terms contained in such agreements, including non-competition clauses, which remain governed primarily by state law, but came under fire last week in statements made by President Obama and other members of his administration.