FTC and DOJ Release Guidance on How Antitrust Law Applies to Employee Hiring and Compensation
On October 20, 2016, the Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ) released Antitrust Guidance for Human Resource Professionals on how antitrust law applies to employee hiring and compensation. The guidance is accompanied by a quick reference card that summarizes the guidance in a convenient, index-card-sized format. In announcing the guidelines, the agencies stressed that employees “are entitled to the benefits of a competitive market for their services” just as consumers are entitled to a competitive market for the products and services they buy. While the principles underlying the guidelines are nothing new for those familiar with the antitrust laws, they do provide insight into the agencies’ approach to antitrust in the human resources environment.
Most notably, the guidance states that going forward the DOJ intends to criminally investigate naked no-poaching or wage-fixing agreements that are unrelated or unnecessary to a larger legitimate collaboration between employers. If an investigation uncovers a naked wage-fixing or no-poaching agreement, the DOJ may, in its prosecutorial discretion, bring felony charges against both the companies and individuals involved in the illicit agreement. The guidance defines a no-poaching agreement as an agreement “with individual(s) at another company to refuse to solicit or hire that other company’s employees.” A wage-fixing agreement is an agreement “with individual(s) at another company about employee salary or other terms of compensation, either at a specific level or within a range.”
The guidance further warns that “merely inviting a competitor to enter into an illegal agreement may be an antitrust violation—even if the invitation does not result in an agreement to fix wages or otherwise limit competition.” So called “invitations to collude” have been a focus of the FTC for some time. The agency takes the view that such communications may violate the FTC Act if they are made to a competitor and set forth proposed terms of coordination which, if accepted, would constitute a per se antitrust violation.
The agencies also caution that the mere sharing of information about the terms and conditions of employment can run afoul of the antitrust laws. Their guidance explains that “[e]ven if an individual does not agree explicitly to fix compensation or other terms of employment, exchanging competitively sensitive information could serve as evidence of an implicit illegal agreement.” While sharing information is not a criminal offense, the antitrust agencies take the position that it can give rise to civil antitrust liability when it has, or is likely to have, an anticompetitive effect, such as a decrease in employee compensation. The guidance does, however, recognize that information exchanges may be permissible under certain circumstances, such as due diligence in connection with a merger or acquisition, provided appropriate safeguards are in place.
The agencies’ guidance also clarifies a couple of misperceptions about how antitrust law applies in the human resources context. First, the guidance notes that it is irrelevant whether the firms make the same products or compete to provide the services in the same marketplace. From an antitrust perspective, the key is that the firms compete to hire or retain employees that are competitors in the employment marketplace. Second, the guidance notes that otherwise unlawful conduct cannot be justified by a desire to cut costs.
The FTC and DOJ guidance comes on the heels of high-profile enforcement actions in the human resources area, most notably the no-poaching actions against several technology companies in California. 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.