The changing antitrust ramifications of no-poach agreements and other agreements affecting employee compensation
August 2021 | SPECIAL REPORT: COMPETITION & ANTITRUST
Financier Worldwide Magazine
August 2021 Issue
US antitrust law prohibits contracts and conspiracies “in restraint of trade”. Although many violators of US antitrust laws face civil litigation, the Department of Justice (DOJ) can also bring criminal charges for antitrust violations, which can result in significant adverse consequences for business organisations (including large fines) and prison sentences for individuals.
The typical antitrust concern involves agreements between competing sellers of a product or service. For instance, the DOJ has brought charges against makers of generic pharmaceuticals alleging that they agreed to charge higher prices than the prices that would have prevailed in the absence of the alleged agreements. But it is also possible for competing buyers to violate the antitrust laws by agreeing to pay too little for a product or service. A recurring example of that concern is the worry that farmers are paid too little for crops as a result of anticompetitive agreements among agricultural processors.
Employers competing for the same pool of labour can violate US antitrust law when they propose or enter into agreements limiting competition with other employers (which are, from the perspective of the antitrust laws, competing buyers of employees’ services). These outlawed agreements include both wage-fixing agreements through which competing employers agree to fix compensation (of any kind, including benefits) for employees at an agreed-upon level, and no-poach agreements through which competing employers agree not to solicit employees from one another, and thereby reduce competition for the services of those employees.
The DOJ moved against these ‘no-poach’ agreements in 2010 when it brought a high-profile civil action against several major technology companies alleging a series of bilateral agreements not to cold call the other’s employees to offer competing employment opportunities. Notably, each unlawful agreement resulted from discussions among the defendants’ senior executives. The DOJ alleged these agreements constituted a per se violation of the antitrust laws – meaning that no economic justification could exculpate the agreement. The DOJ pursued a similar enforcement action against another technology company in 2013. And private plaintiffs also brought suits on similar theories.
In 2016, the DOJ amplified its concern about these unlawful agreements when it, along with the Federal Trade Commission (FTC), published ‘Guidance for Human Resources Professionals’. In the guidance, the DOJ and the FTC claimed that, except when narrowly tailored as a necessary part of a legitimate collaboration between competitors, these kinds of agreements are per se illegal. Crucially, the DOJ also indicated that, going forward, it intended to pursue criminal charges against “both individuals and companies” that entered into “naked wage-fixing or no-poaching agreements”, although it also reserved the discretion to bring civil charges instead.
In December 2020, the DOJ carried through on that stated intention and announced the return of an indictment involving a wage-fixing agreement (along with a related obstruction charge). The named defendant in the indictment, an individual, owned a staffing company that contracted with physical therapists and physical therapist assistants to provide in-home physical therapy services. The DOJ alleged that the defendant’s company entered into agreements with competitors to fix the prices paid to those physical therapists and physical therapist assistants.
Similarly, in January 2021, the DOJ announced the return of an indictment for allegedly engaging in no-poach agreements. That indictment charges that a limited liability company and its successor-in-interest engaged, through its executives and employees, in two no-poach agreements with an unspecified number of co-conspirators in the outpatient care industry.
Most recently, the DOJ announced the return of an indictment against a healthcare staffing company and its former manager for allegedly entering both a no-poach and a wage-fixing agreement with a competitor. The indictment alleges that the defendants and unnamed co-conspirators agreed, in various communications, not to recruit or hire nurses engaged by their co-conspirators and assigned to a particular Nevada school district, and further agreed to refuse to negotiate any wage increases with those nurses.
In light of the DOJ’s increased focus on criminal prosecutions in this area, employers should include guidance on these issues in their compliance and training programmes. Senior executives and HR professionals should be made aware of the substantial adverse consequences of entering into these kinds of agreements, both for their companies and for themselves as individuals. In our experience, HR professionals are sometimes entirely unaware that their work can have antitrust implications, and senior executives are sometimes not attuned to the antitrust implications of agreements involving labour inputs. It is worth noting that all three recent indictments involve relatively small firms in the healthcare industry that lack substantial market power. Put another way, even small companies or subsidiaries can run into problems in this area.
Competition authorities outside the US have not made no-poach and wage-fixing agreements a major focus yet, although several had indicated interest in the issue. Employers should be aware, however, that non-US competition authorities often pay close attention to the DOJ’s enforcement initiatives. Those authorities may well bring their own enforcement mechanisms to bear on no-poach and wage-fixing agreements in the future.
Finally, if a business becomes aware of potentially problematic conduct within its organisation, serious consideration should be given to reporting that conduct to the DOJ to take advantage of its leniency programme, which in general offers the potential for reduced liability in exchange for the full cooperation of a company and its employees in any related criminal investigation and prosecution.
Renata Hesse and Joseph Matelis are partners at Sullivan & Cromwell LLP. Ms Hesse can be contacted on +1 (202) 956 7500 or by email: hesser@sullcrom.com. Mr Matelis can be contacted on +1 (202) 956 7610 or by email: matelisj@sullcrom.com.
© Financier Worldwide
BY
Renata Hesse and Joseph Matelis
Sullivan & Cromwell LLP
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