Do Your Employment Practices Violate Antitrust Law? They Might!

Employment Law Strategist 

February 2017

Did you know your employment practices could violate antitrust law? This is the message to be gleaned from joint guidance recently issued by the Federal Trade Commission (the “FTC”) and the Department of Justice Antitrust Division (the “DOJ”) (collectively, the “Agencies”).  The Agencies issued this guidance to remind employers that, like any other market, the job market is subject to antitrust laws.  Not only could failure to abide by the antitrust laws result in significant civil penalties, but criminal prosecution is even a possibility!

One very important point which emerges from the guidance is the Agencies’ very broad view of what employers are considered “competitors” for antitrust purposes: “[F]irms 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.” Thus the issue is the talents you seek, not your business!  For example, a computer professional could go to work for a financial services company to help operate the specialized financial software which it uses, or he/she could work for the computer company which develops the software in the first place and acts as a vendor to the financial services company.  He/she could also work for an accounting firm or other consulting firm using this type of software.  All these employers would consider themselves in entirely different markets.  However, the Agencies would likely consider these companies to be competitors in the employment marketplace precisely because all of them could hire this same employee.  Thus if these companies agree not to target each other’s employees/candidates, they may in fact violate antitrust laws.

“WAGE FIXING” AND “NO POACHING” AGREEMENTS ARE USUALLY ILLEGAL

The Agencies focus on a number of problematic practices. The first is where employers agree not to recruit designated employees or not to compete on compensation terms.  The Agencies lump these into two broad categories – “wage fixing” agreements and “no poaching” agreements.  Under wage fixing agreements multiple companies agree about “employee salaries or other terms of compensation, either at a specific level or within a range.”  Under no poaching agreements, by contrast, the companies agree not to solicit or hire the other company’s employees.

Both types of agreements can violate antitrust laws, but “naked” agreements are per se illegal.  Naked agreements are those which are not attached to or reasonably necessary for a larger “legitimate collaboration” between the employers – they function as standalone attempts to limit compensation levels or avoid poaching employees.  Therefore, these naked agreements will automatically be “deemed illegal without any inquiry into [their] competitive effects.”  By contrast, legitimate joint venture agreements (the Agencies use the example of shared use of facilities) would not automatically be considered illegal.

Perhaps the most alarming revelation is that the DOJ intends to criminally prosecute those who enter into naked wage fixing and no poaching agreements. The rationale is that these agreements “eliminate competition in the same irredeemable way as agreements to fix product prices or allocate customers.”  In other words, the Agencies view this as on par with “hardcore cartel conduct”!  Forming such agreements could result in felony charges against the companies which have entered into the agreements and the specific individuals responsible for leading this effort.

SHARING SENSITIVE EMPLOYEE COMPENSATION AND RELATED INFORMATION MAY OFTEN VIOLATE ANTITRUST LAW

Other activity which, according to the guidance, would violate antitrust law is sharing information with competitors about the terms and conditions of employment. The Agencies will not criminally prosecute such activity because it is not per se illegal.  However, exchanging what the Agencies term “competitively sensitive” information can serve as evidence of an implicit illegal agreement.  Such agreements can result in civil liability “when they have, or are likely to have, an anticompetitive effect.”

What would be considered “competitively sensitive” information? One example is current wage information: “[E]vidence of periodic exchange of current wage information in an industry with few employers could establish an antitrust violation because, for example, the data exchange has decreased or is likely to decrease compensation.”

The principal issue the Agencies are seeking to stamp out is exchange of information that would allow employers competing for the same employees to depress the market. For example, the Agencies cited a recent DOJ case in which a society of HR professionals at Utah hospitals conspired to exchange “nonpublic prospective and current wage information about registered nurses.”  The issue was that this caused the nurses’ pay to remain artificially low.

By contrast, exchanges in which the information provided is not useful for the purpose of depressing the labor market is not unlawful. The Agencies declared exchanges are lawful if:

1. A neutral third party manages the exchange;
2. The exchange involves information that is relatively old;
3.  The information is aggregated to protect the identity of the underlying sources; and
4. Enough sources are aggregated to prevent competitors from linking particular data to an individual source.

WHAT CAN YOU DO? 

What should you do if your company is engaging in anti-competitive practices? The guidance encourages companies and individuals to take advantage of the Leniency Policies offered by the DOJ. There is both a Corporate Leniency Policy and an Individual Leniency Policy (for those who approach the DOJ on their own behalf). Both policies allow those who come forward to admit involvement in illegal antitrust activities and cooperate with the DOJ’s subsequent investigation to avoid criminal liability.

Under the Corporate Policy, leniency can be granted if the company reports the illegal activity before the DOJ begins to investigate. This is known as “Type A” leniency.  The following six conditions must be met for Type A leniency:

1. At the time the corporation comes forward to report the illegal activity, the Division has not received information about the illegal activity being reported from any other source;
2. The corporation, upon its discovery of the illegal activity being reported, took prompt and effective action to terminate its part in the activity;
3. The corporation reports the wrongdoing with candor and completeness and provides full, continuing and complete cooperation to the Division throughout the investigation;
4. The confession of wrongdoing is truly a corporate act, as opposed to isolated confessions of individual executives or officials;
5. Where possible, the corporation makes restitution to injured parties; and
6. The corporation did not coerce another party to participate in the illegal activity and clearly was not the leader in, or originator of, the activity.

There is also an alternative seven factor test which can still allow for corporate leniency if the six conditions above cannot all be satisfied. This is known as “Type B” leniency. A number of the factors are the same as those in the test above. The factors required for Type B leniency are as follows:

1. The corporation is the first one to come forward and qualify for leniency with respect to the illegal activity being reported;
2. The Division, at the time the corporation comes in, does not yet have evidence against the company that is likely to result in a sustainable conviction;
3. The corporation, upon its discovery of the illegal activity being reported, took prompt and effective action to terminate its part in the activity;
4. The corporation reports the wrongdoing with candor and completeness and provides full, continuing and complete cooperation that advances the Division in its investigation;
5. The confession of wrongdoing is truly a corporate act, as opposed to isolated confessions of individual executives or officials;
6. Where possible, the corporation makes restitution to injured parties; and
7. The Division determines that granting leniency would not be unfair to others, considering the nature of the illegal activity, the confessing corporation’s role in it, and when the corporation comes forward

Corporate directors, officers, and employees can receive leniency if the corporation qualifies for the initial six-prong leniency test and if they admit their wrongdoing with candor and completeness and continue to assist the Division throughout the investigation. If the corporation does not qualify for the six-prong test, the corporate directors, officers, and employees who come forward with the corporation can still “be considered for immunity from criminal prosecution on the same basis as if they had approached the Division individually.” The requirements for leniency under the Individual Policy are as follows:

1. At the time the individual comes forward to report the illegal activity, the Division has not received information about the illegal activity being reported from any other source;
2. The individual reports the wrongdoing with candor and completeness and provides full, continuing and complete cooperation to the Division throughout the investigation; and
3. The individual did not coerce another party to participate in the illegal activity and clearly was not the leader in, or originator of, the activity.

Only one corporation will be granted leniency for each conspiracy. This is sometimes referred to as a “First-In-The-Door” requirement. As a result, the DOJ states that time is of the essence when reporting antitrust activity. In fact, the DOJ has stated that, “On a number of occasions, the second company to inquire about a leniency application has been beaten by a prior applicant by only a matter of hours…” and “there have been dramatic differences in the disposition of the criminal liability of corporations whose respective leniency applications to the [DOJ] were very close in time.”

Nevertheless, approaching the government to admit illegal antitrust activity is a major decision. There are many issues which must be considered. For instance, leniency applicants must be prepared to admit to criminal violations of antitrust laws. If you are considering this option, you should first seek the advice of experienced antitrust counsel. Detailed information regarding the DOJ’s leniency programs can be found on the “Frequently Asked Questions Regarding The Antitrust Division’s Leniency Program” web page at https://www.justice.gov/atr/page/file/926521/download.