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How Cos. Can Weather Growing DOJ Labor Antitrust Scrutiny

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Since the US Department of Justice Antitrust Division and the Federal Trade Commission released their joint antitrust guidance for human resource professionals in 2016, the agencies have consistently warned of robust civil and criminal enforcement in labor markets. Initially, enforcement focused on civil litigation. But in December 2020, the Antitrust Division obtained its first criminal indictment concerning an alleged wage-fixing conspiracy to lower the rates paid for physical therapists.1 In January 2021, the Antitrust Division announced a separate criminal indictment charging that health care competitors agreed not to solicit each other's senior-level employees.2 Around the same time, the campaign of President Joe Biden released a plan vowing to "work with Congress to eliminate all noncompete agreements, except the very few that are absolutely necessary to protect a narrowly defined category of trade secrets, and outright ban all no-poaching agreements."3 Given the increasing antitrust scrutiny on labor markets, this article discusses compliance tips to help mitigate antitrust risk.

 

Wage-Fixing and No-Poach Agreements

An effective compliance program requires that employees involved with hiring and compensation decisions be trained to issue spot potential antitrust risks. Wage-fixing and no-poach agreements pose the greatest antitrust exposure.

The DOJ and FTC have defined wage-fixing agreements as either formal or informal agreements, even if unspoken, as to salary, benefits and other compensation terms at either a specific level or within a range.4 The agencies have defined no-poach agreements as formal or informal agreements that allocate the hiring of employees or otherwise involve an agreement not to solicit or hire another company's employees.5

As the Antitrust Division recently emphasized, the December 2020 and January 2021 indictments "demonstrate the Antitrust Division's continued commitment to criminally prosecute collusion in America's labor markets."6 Indeed, since 2017, Antitrust Division officials have consistently reiterated the agency's focus on criminal enforcement of anti-competitive employment agreements, with the former head of the Antitrust Division commenting that he was "shocked" at the number of ongoing investigations in this space and another official stating that "any number of them could be, probably, the largest investigations the Antitrust Division has ever undertaken."7 Previously, the Division had filed several civil suits concerning alleged agreements not to cold call other technology company's employees, to boycott temporary nursing registries, and to reduce fees and other compensation for fashion models. 

Given these developments, companies should consider the following best practices.

Treat hiring and compensation agreements with competitors as potential per se violations for compliance purposes. 

The Antitrust Division views so-called naked wage-fixing and no-poach agreements as per se criminal violations, which means that any pro-competitive benefits, such as lower consumer prices or other justifications, are not considered in the Division's view. There is little case law directly addressing the proper standard to apply in this area, and a per se test might not apply in all instances. But, for compliance purposes, companies should err on the side of caution and expressly adopt compliance criteria prohibiting competitor interactions that could be perceived as wage-fixing or no-poach agreements.

Customize your compliance program.

The most effective compliance programs tend to be customized and company-specific. For example, the DOJ and FTC take the view that "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."8 That standard is not only industry-specific but also company-specific. Proactively identifying the relevant employees, competing firms and situations in which competitor interactions are likely to occur, such as industry conferences or trade association meetings, and establishing guidelines for permissible and prohibited conduct is critical to reducing antitrust risk.

Document your independent decision-making process. 

Human resources and other relevant professionals should establish and document an independent decision-making process for hiring and compensation decisions. Follow a written policy and keep records of the decision-making process, which can serve as important evidence in the event of a government investigation or legal proceedings.

Involve in-house counsel.

In-house counsel should generally be involved in hiring decisions for senior-level employees and in highly competitive fields. Similarly, a company should have an internal reporting process in the event that a competitor raises what might be construed as a wage-fixing or no-poach agreement. 

 

Information Exchanges

Even in the absence of a wage-fixing or no-poach agreement, simply exchanging information with a competitor may be subject to civil antitrust liability when the exchange concerns competitively sensitive information and has anti-competitive effects that outweigh the pro-competitive benefits.9 The Antitrust Division has challenged such exchanges, particularly in the trade association setting.

For example, the DOJ sued the Utah Society for Healthcare Human Resources Administration for allegedly exchanging nonpublic, prospective and current wage information. According to the DOJ, the "exchange caused defendant hospitals to match each other's wages, keeping the pay of registered nurses in Salt Lake County and elsewhere in Utah artificially low."10 In 2019, the Antitrust Division filed a civil suit alleging that the National Association for College Admission Counseling established and enforced illegal restraints on the ways that colleges compete in recruiting students.11 And in response to the COVID-19 pandemic, the DOJ and FTC issued a joint statement in March 2020 encouraging certain competitor collaborations but emphasized that competitively sensitive information—specifying wage information three times—should not be shared.12 

Nevertheless, not all exchanges of hiring and compensation information are illegal or need to be restricted as part of a compliance program. According to the antitrust guidance:

[I]nformation exchanges may be lawful if:

  • A neutral third party manages the exchange
  • The exchange involves information that is relatively old
  • The information is aggregated to protect the identity of the underlying sources
  • Enough sources are aggregated to prevent competitors from linking particular data to an individual source13

Determining the legality and potential risks of such exchanges, however, is fact-intensive and antitrust counsel should be involved prior to exchanging any information with a competitor. It is also important to establish written criteria and parameters for an information exchange prior to it occurring, and the pro-competitive benefits associated with the exchange should be documented. Moreover, the Antitrust Division and the FTC have business review and advisory opinion processes, respectively, in which companies may ask the agencies for a statement of their current enforcement intentions with respect to a company's proposed conduct. Under certain circumstances, seeking such opinions can provide important guidance and further help reduce antitrust risk.

 

Noncompete Agreements

Despite Biden's recent proposal to ban most noncompete agreements, no such ban currently exists at the federal level. The FTC has also considered whether to use its rulemaking authority to address noncompetes, but has not done so to date. Instead, states have taken the lead with legislation and enforcement in this area, creating a complex web of state-specific laws. 

In the last few years alone, over a dozen states have amended their noncompete laws to add additional employee-based protections and to ban certain types of noncompetes. For example, in January, the District of Columbia enacted a ban on nearly all noncompete agreements, which covers all levels and types of employees—with the exception of certain medical specialists—applies during and after employment, e.g., moonlighting, and prospectively voids any such agreements.14 Other recent noncompete bans, such as Washington state's January law, apply only to employees earning less than $100,000,15 and there is significant variation among other state laws.

State attorneys general have been active as well. In March 2020,19 state attorneys general urged the FTC "to ramp up enforcement actions against unreasonable noncompete agreements, make new rules limiting use of these agreements for low-wage workers, and closely examine their impact on all workplaces."16 Additionally, in 2019, the Illinois attorney general obtained a settlement ending the use of noncompete agreements that allegedly "restricted employees from working for any other business that provides consumer lending services or products for one year after they left the company," which the attorney general argued had an overly broad definition of competing lending services and applied to workers earning less than $13 per hour.17 And in 2018, the New York attorney general similarly obtained a settlement ending the allegedly overbroad use of noncompetes that prohibited "all employees from working for competitors after leaving the company, regardless of job duties, knowledge of confidential information, or compensation."18

Against this backdrop, companies should carefully assess their policies and compliance strategies. An effective compliance program should address the following.

Governing law

With state laws frequently changing, it is imperative to understand the varying legal rules in the relevant jurisdictions in which a company operates and how state laws may have recently changed. Companies should also understand the choice-of-law rules that govern and include a choice-of-law clause when possible in employee agreements.

Justifications

Even the strictest jurisdictions typically recognize the need to protect against the disclosure of trade secrets, customer lists, and other confidential and proprietary information. Noncompete agreements are less likely to be susceptible to a challenge when the agreement is narrowly tailored to such interests.

Senior versus low-wage workers

The Illinois attorney general and New York attorney general examples above demonstrate that when noncompetes are required for all workers, including low-wage workers, such agreements are more likely to face scrutiny. It generally makes sense for companies to customize their noncompetes to fit different categories or levels of employment.

Time and geographic limitations

In many circumstances, adding reasonable time and geographic limitations can help ensure that a noncompete agreement is not construed as overbroad.

Disclosure

When possible, establish and follow a written disclosure policy. Noncompetes usually should be negotiated prior to the start of employment and the employee should agree to the terms in writing. Having a standalone noncompete agreement, as opposed to one that is part of a broader employment policy, can also help reduce the likelihood that an employee raises such concerns.

 

Conclusion

The intersection between competition and employment law is a hot area across both Republican and Democratic administrations. Many observers expect that continuing criminal prosecutions and additional legislation in these areas is likely as well. Proactively establishing and updating compliance policies, which often takes relatively minimal time and resources compared to prolonged and expensive government investigations and legal proceedings, can significantly reduce antitrust risks.

 

1 Former Owner of Health Care Staffing Company Indicted for Wage Fixing, DOJ Press Release (Dec. 10, 2020).
2 Health Care Company Indicted for Labor Market Collusion, DOJ Press Release (Jan. 7, 2021)
3 The Biden Plan for Strengthening Worker Organizing, Collective Bargaining, and Unions.
4 Antitrust Guidance for Human Resource Professionals at 3, DOJ Antitrust Division and FTC (Oct. 2016), https://www.justice.gov/atr/file/903511/download
5 Id.
6 Health Care Company Indicted for Labor Market Collusion, supra note 2.
7 Matthew Perlman, DOJ's Antitrust Unit Making Good On Labor Market Warnings, Law360 (Jan. 12, 2021); Matthew Perlman, DOJ Deputies Warn Of Coming Antitrust Cases, Law360 (Mar. 27, 2019), https://www.law360.com/articles/1143542.
8 Antitrust Guidance at 2, supra note 4.
9 Id. at 4.
10 Id. at 5.
11 Justice Department Files Antitrust Case and Simultaneous Settlement Requiring Elimination of Anticompetitive College Recruiting Restraints, DOJ Press Release (Dec. 12, 2019)
12 Joint Statement Regarding COVID-19, DOJ and FTC (Mar. 2020).
13 Antitrust Guidance at 5, supra note 4.
14 D.C. Act 23-563 (Jan. 11, 2021).
15 Revised Code of Washington 49.62.020
16 AG Racine Leads 19 Attorneys General Urging Federal Trade Commission to Crack Down on Abusive Non-Competes in the Workplace (Mar. 12, 2020).
17 Attorney General Madigan Reaches Settlement With National Payday Lender for Imposing Unlawful Non-Compete Agreements, Illinois Attorney General Press Release (Jan. 7, 2019).
18 A.G. Underwood Announces Settlement With WeWork To End Use Of Overly Broad Non-Competes That Restricted Workers' Ability To TakeNewJobs, New York Attorney General Press Release (Sept. 18, 2018).

 

This article was first published by Law360 on March 3, 2021. For further information please visit Law360 website.

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