Antitrust Agencies Issue Guidance for Human Resource Professionals on Employee Hiring and Compensation

October 26, 2016

On October 20, 2016, the Antitrust Division of the Department of Justice ("DOJ") and Federal Trade Commission ("FTC") (collectively, the "federal antitrust agencies") jointly issued guidance for human resource ("HR") professionals regarding the application of the federal antitrust laws to hiring practices and compensation decisions.[1]  The guidance focuses on HR professionals as gatekeepers, explaining that they "often are in the best position to ensure that their companies’ hiring practices comply with the antitrust laws."  According to the federal antitrust agencies, "HR professionals can implement safeguards to prevent inappropriate discussions or agreements with other firms seeking to hire the same employees."  In addition to providing practical guidelines for HR professionals, the guidance announces a significant shift in the DOJ’s enforcement policies with its statement that the DOJ intends to proceed criminally against "naked wage-fixing and no-poaching agreements," i.e., standalone agreements that are not a legitimate part of a broader joint venture or other lawful collaboration. 

The guidance asserts that an agreement among employers who compete for talent to limit or fix the terms of employment for potential hires may violate the federal antitrust laws if the agreement constrains individual firm decision-making with regard to wages, salaries, terms of employment, or job opportunities.  According to the federal antitrust agencies, employees are harmed if companies that would ordinarily compete against each other to recruit and retain employees agree to fix wages or other terms of employment (including seemingly minor benefits such as gym memberships) or enter into "no-poaching" agreements by agreeing not to recruit each other’s employees.   

Significantly, the federal antitrust agencies announced that, on a going forward basis, the DOJ intends to bring criminal charges against individuals and companies who participate in agreements to fix wages or to refrain from poaching employees.  In the past, the DOJ generally has instituted civil enforcement actions against companies allegedly engaged in wage-fixing or "no poach" agreements.  In the guidance, the federal antitrust agencies equate "[n]aked wage-fixing or no-poaching agreements" (and invitations to enter into such agreements) with "hardcore cartel conduct" and contend that such agreements are per se illegal under the antitrust laws.  Because a per se violation is condemned as illegal without any inquiry into competitive effects, according to the federal antitrust agencies, a naked wage-fixing or no-poaching agreement could not be justified by a desire to reduce costs, become more efficient, or increase employment opportunities.  The guidance recognizes, however, that some wage-fixing and no-poaching agreements may not be considered per se illegal if they are ancillary to a legitimate, procompetitive collaboration between two employers, such as a joint venture.  Moreover, the guidance expressly declines to address employee non-compete agreements. 

The federal antitrust agencies also signaled that they will subject information exchanges, which have been traditionally evaluated under the rule of reason, to increased scrutiny.  Specifically, the agencies assert that even absent an express or implicit agreement on wages or terms of employment between firms, evidence of exchanges of wage information (including discussion of compensation levels or policies at industry meetings or events) could be sufficient to establish an antitrust violation.  In line with past guidance regarding information exchanges, the federal antitrust agencies note that the risk of antitrust liability can be mitigated if the exchange involves information that is relatively old, aggregated, and is managed by a neutral third party.[2]  The guidance also recognizes that it may be appropriate for a company to obtain competitively sensitive information in the course of M&A due diligence, but only if suitable precautions are taken. 

In support of the guidance, the agencies also issued a "red-flag" list for both "human resource professional[s]" and "manager[s]."  That red-flag list identifies agreements, discussions, or information exchanges among competitors that could run afoul of the federal antitrust laws.  Among the red flags identified are:

• Agreeing with another company about employee salary or other terms of compensation, either at a specific level or within a range;
• Agreeing with another company to refuse to solicit or hire that other company’s employees;
• Agreeing with another company about employee benefits;
• Agreeing with another company on other terms of employment;
• Expressing to competitors that you should not compete too aggressively for employees;
• Exchanging company-specific information about employee compensation or terms of employment with another company;
• Participating in a meeting, such as a trade association meeting, where the above topics are discussed;
• Discussing the above topics with colleagues at other companies, including during social events or in other non-professional settings; and
• Receiving documents that contain another company’s internal data about employee compensation.

The guidance also contains a Q&A section, designed to assist HR professionals in identifying and responding to potential antitrust violations, as well as to emphasize that HR professionals can be held personally criminally liable for engaging in wage-fixing and no-poaching agreements.  The Q&A suggests that agreements related to any aspect of compensation, even benefits such as free gym memberships or meals, may be considered potentially criminal wage-fixing. 

Finally, the guidance encourages self-reporting and whistleblowing by HR professionals with information regarding potential antitrust violations. 

With the issuance of this guidance, the federal antitrust agencies have clearly communicated their intent, going forward, to closely scrutinize recruitment and hiring practices, as well as information exchanges between employers, for potential antitrust violations.  Given the added specter of individual and corporate criminal liability, now more than ever companies should ensure that their hiring and compensation policies and practices conform with antitrust law, including any available exemptions that may exist for collective bargaining and other practices permitted under the federal labor laws (a topic not addressed in the new guidance).   

   [1]   Department of Justice, Antitrust Division & Federal Trade Commission, Antitrust Guidance for Human Resources Professionals (October 2016), https://www.justice.gov/atr/file/903511/download.  See also Department of Justice, Press Release, Justice Department and Federal Trade Commission Release Guidance for Human Resource Professional n How Antitrust Law Applies to Employee Hiring and Compensation, October 20, 2016, https://www.justice.gov/opa/pr/justice-department-and-federal-trade-commission-release-guidance-human-resource-professionals; Federal Trade Commission, Press Release, FTC and DOJ  Release Guidance for Human Resource Professional on How Antitrust Law Applies to Employee Hiring and Compensation, October 20, 2016, https://www.ftc.gov/news-events/press-releases/2016/10/ftc-doj-release-guidance-human-resource-professionals-how. 

   [2]   See Department of Justice, Antitrust Division & Federal Trade Commission, "Statement 6 – Provider Participation in Exchanges Of Price And Cost Information," in Statements of Antitrust Enforcement Policy in Health Care (1996), https://www.justice.gov/atr/statements-antitrust-enforcement-policy-health-care#CONTNUM_49.