The Department of Justice Antitrust Division (DOJ) and the Federal Trade Commission (FTC) recently published guidance to alert Human Resources professionals of the risks of entering into agreements with competitors about employment terms and to provide guidance for safeguarding against the violations. According to the guidance, when competing employers establish “no poaching” agreements for each other’s employees, it may be a violation of U.S. anti-trust laws. The guidance also establishes “naked wage fixing” as a violation. Naked wage fixing occurs when there is an agreement between companies to set wage rates that is not reasonably necessary to any other legitimate collaboration between the companies or organizations.
Basically, antitrust laws prohibit competitors from agreeing to not compete. This doesn’t just apply to competitors for goods or services, but also covers competition for talent. The guidance makes clear that the anti-trust laws apply to the employment activities of both for-profit and non-profit organizations, including hospitals and universities. In addition, it not only covers wages, but other benefits and perquisites such as gym memberships, parking, and meal subsidies. Companies don’t even have to be in the same industry for this to be a problem. For example, if a large retailer and a technology company are both hiring technical talent in Silicon Valley, they are competitors for talent even though they may not be competing for goods or services.
When the antitrust agencies believe that a ‘no poaching’ or ‘naked wage agreement’ exists, they can bring criminal or civil charges against the company and also individuals in the company, including Human Resources professionals. According to the guidance issued, an HR professional who enters into such an agreement on behalf of your company “would likely be exposing yourself and your employer to substantial criminal and civil liability.” According to the DOJ, this is equivalent to price fixing.
However, the government is not just talking, but taking action. In the not so distant past, the DOJ filed a case against the Arizona Hospital & Healthcare Association for setting uniform billing rates for the region’s hospital with regard to temporary and per diem nurses. As a result, the Arizona Hospital & Health Association had to agree to significant changes in the way they operated and periodic compliance inspections. Other cases have involved large tech companies like Apple, Google, Adobe, Pixar, and others. It was found that some of these companies agreed to not cold call, and in some instances, not hire each other’s employees. Known as the “High Tech Litigation Settlement” individuals affected by these agreements were entitled to money from the class action settlement.
So what guidance do the DOJ and FTC give to Human Resources professionals? The agencies’ basic recommendation is to (a) not enter into any type of agreement regarding the hiring of each other’s employees and (b) don’t share non-public information regarding terms and conditions of employment. The sharing of information may not be illegal, per se, but if sharing the information has the effect of influencing the compensation of individuals working in those companies, there may be a violation.
But wait a minute—don’t many of us participate in salary surveys to determine the competitive rates needed to hire and retain employees? Is that now illegal? According to the guidelines, these types of survey are acceptable as long as they meet certain criteria:
- A third party manages the exchange of information.
- The exchange involves information that is relatively old.
- The information is aggregated to protect the identity of any the underlying sources.
- There are enough sources to prevent the identification of any individual sources.
One might ask how you determine if the information is “relatively old” or if there are “enough sources.” The DOJ, in its specific guidance to the healthcare industry, requires data that is at least three months old and from at least five sources, with no one source representing more than 25% of the weighted basis for the applicable statistics, e.g. weighted average. However, it’s always advisable that when in doubt, seek legal advice.
For more detailed information, see the Antitrust Guidance for Human Resources Professional.