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The criminalization of no-poach agreements and heightened antitrust risks for human resources

Human resources has traditionally not been a high priority area in terms of antitrust compliance. Antitrust violations relating to the hiring or soliciting of employees were viewed by the Antitrust Division of the U.S. Department of Justice (Antitrust Division or DOJ) as appropriate for civil enforcement. The status quo, however, has been disrupted and companies should now be mindful of heightened antitrust risks with respect to human resources. The DOJ has made criminal prosecution of no-poach agreements – agreements whereby firms agree not to recruit or hire each other’s employees – an enforcement priority and has previewed in no uncertain terms that criminal indictments may be forthcoming. This article explores the risks associated with no-poach agreements and provides best practices for managing them.

October 2016 guidance for human resources professionals

In October 2016, the DOJ and the Federal Trade Commission (FTC) issued joint guidelines on this topic: “Antitrust Guidance for Human Resources Professionals” (the HR Guidelines). The stated purpose of the HR Guidelines was to alert human resources professionals that agreements among competing employers relating to hiring and compensation decisions potentially could rise to the level of an antitrust violation. The HR Guidelines were particularly notable for two reasons.

Applying the “per se” treatment to no-poach agreements

The HR Guidelines made clear that the U.S. antitrust enforcers considered “naked” wage-fixing or no-poaching agreements (eg agreements that are separate from or not reasonably related to a larger legitimate collaboration) as per se illegal under antitrust laws. In other words, such agreements would be considered by the DOJ and FTC to be inherently or presumptively illegal and no pro competitive justifications could be used as a defense. This stance was a striking move by the regulators. While it was well understood that agreements among employers to restrict hiring or fix wages potentially are anticompetitive, categories of offenses qualifying for per se treatment (such as price fixing, bid rigging, and market allocation) typically are established only after years of judicial precedent and refinement. Yet no-poach agreements had not been subject to any such rigorous analysis by the courts.

Moreover, the DOJ’s own position on no-poach agreements had been somewhat inconsistent. While the DOJ had brought civil enforcement actions in the past and contended that no-poach agreements were per se unlawful, it had also suggested that a rule of reason analysis may be appropriate in certain circumstances. For example, when the DOJ sued eBay in 2013 alleging that the company had entered into an unlawful no-hiring/no-solicitation agreement with Intuit, the DOJ put forth two alternative theories. In addition to asserting that the agreement forged between eBay and Intuit was per se unlawful, the DOJ also claimed that in the alternative the agreement would be an unreasonable restraint of trade when assessed “under an abbreviated or “quick look” rule of reason analysis”, arguing that “[t]he principal tendency of the agreement … is to restrain competition”.1

Criminalizing no-poach agreements

In the HR Guidelines, the DOJ also stated in no uncertain terms that it “will criminally investigate allegations that employers have agreed among themselves on employee compensation or not to solicit or hire each other’s employees…[a]nd if that investigation uncovers a naked wage-fixing or no-poaching agreement, the DOJ may, in the exercise of its prosecutorial discretion, bring criminal, felony charges against the culpable participants in the agreement, including both individuals and companies”.2 This exposes both individuals and companies to substantial criminal fines, and individuals to jail time.

This policy of treating no-poach agreements as criminal offenses stands in stark contrast to the DOJ’s most recent foray into this area. In 2010, the DOJ investigated and ultimately challenged no-poach agreements entered into by several Silicon Valley technology companies. While the DOJ alleged that these agreements amounted to per se violations of Section 1 of the Sherman Act, the government pursued only civil charges, which resulted in a settlement with six companies (Adobe, Apple, Google, Intel, Intuit and Pixar).

Trump’s antitrust division publicly signals criminal enforcement is imminent

It quickly became clear that the Trump DOJ embraced this policy change. In September 2017, Andrew Finch, then Acting Assistant Attorney General in charge of the Antitrust Division, delivered remarks in which he warned that companies and their executives “should be on notice” that no-poach or wage-fixing agreements would be treated as per se unlawful.3 As Finch noted, it is irrelevant whether those companies sell different products or services or compete for the same consumers, because “they still can compete for workers.”

In January 2018, Assistant Attorney General Makan Delrahim, Trump’s first confirmed head of the Antitrust Division, revealed that the DOJ had several ongoing no-poach investigations, and that if the conduct occurred or continued after issuance of the HR Guidelines, the DOJ would treat those agreements as criminal violations.4

Delharim’s predictions have yet to be supported by any criminal indictments. However, on April 3, 2018, the DOJ announced it had reached a civil settlement with rail equipment suppliers Knorr-Bremse AG and Westinghouse Air Brake Technologies Corp. (known as Wabtec) related to no-poach agreements that the two companies allegedly had in place since at least 2009.5 In its press release, the DOJ explained that it was exercising prosecutorial discretion to treat the agreements as civil (and not criminal) violations precisely because the defendants had “formed and terminated” the unlawful agreements before issuance of the HR Guidelines.6 In its Competitive Impact Statement, the DOJ reiterated its position that it “may proceed criminally where the underlying [no-poach agreements] began or continue after October 2016”.7 As such, the civil settlement with Knorr-Bremse AG and Wabtec anticipates future criminal indictments from the DOJ.

Guidelines for minimizing antitrust risk

As we wait for further clarity on whether the DOJ is pursuing additional investigations and whether it will finally pursue criminal indictments, there are steps that companies and in-house counsel can take to avoid criminal or civil exposure.

  • Extend antitrust compliance training to HR personnel. While the focus of antitrust compliance has been on sales and marketing personnel, HR personnel need to be able to issue spot and identify potential no-poaching or wage-fixing agreements.
  • Ensure that any restraints on employee solicitation or hiring are ancillary to a legitimate pro-competitive collaboration and are narrowly tailored. Even the HR Guidelines acknowledge that no-poach agreements may be acceptable if ancillary to a legitimate agreement (eg a provision in a purchase agreement prohibiting post closing solicitation of certain employees). Nevertheless, the restraints must be reasonable in terms of scope and duration.
  • Avoid or limit information exchanges with competitors. Exchanges of information with a competitor may be appropriate under certain circumstances (eg for the purposes of due diligence or in furtherance of a legitimate business collaboration). However, such exchanges should be on a need-to-know basis and limited only to what is reasonably necessary.
  • Vet information exchanged through trade associations or industry groups with antitrust counsel. Exchanges of information through trade associations or other industry groups may be permissible if the information disseminated is sufficiently aggregated and historical, but should be vetted first by antitrust counsel.
  • Consider alternatives to non solicitation agreements. There are a number of ways that companies can retain high-value employees without entering into agreements with competitors. In addition to incentivizing employees with salaries, bonuses and benefits, employers also may legitimately restrict employee action through narrowly tailored non-compete agreements, agreements not to solicit customers or clients of the company, and non disclosure or confidentiality agreements. Given the vertical nature of the relationship between employer and employee, such agreements would be viewed through the lens of the rule of reason.

Finally, to the extent a company knows or has reason to believe that it may have participated in no poaching agreements with competitors, particularly if such conduct occurred or continued after October 2016, it should immediately seek input of antitrust counsel to determine the appropriate steps to take to avoid or minimize criminal and/or civil liability.

Footnotes:

1. Amended Complaint, United States v eBay, Inc., No-12-CV-05869 (N.D. Cal. 2013) (emphasis added), available at justice.gov/atr/case-document/file/494671/download
2. HR Guidelines at 4, available at justice.gov/atr/file/903511/ download
3. Andrew Finch, Acting Assistant Attorney General, Antitrust Division, U.S. Dep. of Justice, “Antitrust Enforcement and the Rule of Law,” Remarks at Global Antitrust Enforcement Symposium (Sept. 12, 2017), available at justice.gov/opa/speech/file/996151/download
4. “Delrahim Says Criminal No-Poach Cases Are in the Works,” Law360 (Jan. 19, 2018), available at law360.com/articles/1003788/delrahim-says-criminal-no-poach-cases-are-in-the-works
5. DOJ Press Release, “Justice Department Requires Knorr and Wabtec to Terminate Unlawful Agreements Not to Compete for Employees “(April 3, 2018), available at justice.gov/opa/pr/justice-department-requires-knorr-and-wabtec-terminate-unlawful-agreements-not-compete
6. Id.
7. Competitive Impact Statement, at 11, United States v. Knorr-Bremse AG, No. 18 cv-00747 (D.D.C. 2018).

Further information

This article is part of the Allen & Overy Legal & Regulatory Risk Note, a quarterly publication. For more information please contact Karen Birch – karen.birch@allenovery.com, or tel +44 20 3088 3710.

Legal and Regulatory Risk Note
United States