New Guidance for HR Professionals Regarding Wage-Fixing and No-Poaching Agreements Raises New Concerns for Employers

December 05, 2016

The U.S. Department of Justice ("DOJ") and the Federal Trade Commission ("FTC" and collectively the "Antitrust Agencies") jointly issued new guidance for Human Resource professionals regarding agreements between competitors related to hiring and compensation of employees (the "Guidance").

The Guidance explains the Antitrust Agencies’ position with regard to wage-fixing and no-poaching agreements between competitors in the employment marketplace. It also highlights the Antitrust Agencies’ intent to shift toward criminal prosecution of companies and individuals who enter into these types of agreements when they are not ancillary to a legitimate business collaboration, such as a joint venture or a merger or acquisition.

The Guidance is particularly significant because it announces that the Antitrust Agencies will view standalone, or "naked," wage-fixing or no-poaching agreements between competitors in the employment marketplace as per se illegal regardless of whether they have an actual anti-competitive effect. According to the Guidance, a "naked" wage-fixing or no-poaching agreement is an agreement that is separate from or not reasonably necessary to a larger legitimate collaboration between companies, such as a joint venture or a proposed merger or acquisition of one company, or a division thereof, by another company. In the Guidance, the Antitrust Agencies compared such "naked" wage-fixing and no-poaching agreements to price-fixing agreements—which have traditionally been criminally investigated and prosecuted as hardcore cartel cases—and indicated that they view them as eliminating competition in the same irredeemable way. Accordingly, the DOJ intends to investigate and, where appropriate, bring criminal, felony charges against companies and individuals it believes are guilty of violating antitrust laws by entering into such "naked" wage-fixing or no-poaching agreements. This represents a shift in how the Antitrust Agencies have traditionally dealt with wage-fixing and no-poaching agreements and significantly increases the risk of antitrust violations for employers.

The Guidance includes a list of "red flags." According to the Antitrust Agencies, antitrust concerns arise if a company:

  • Agrees with another company about employee salary or other terms of compensation, either at a specific level or within a specific range.
  • Agrees with another company to refuse to solicit or hire that other company’s employees.
  • Agrees with another company about employee benefits.
  • Agrees with another company on other terms of employment.
  • Expresses to competitors that they should not compete too aggressively for employees.
  • Exchanges company-specific information about employee compensation or terms of employment with another company.
  • Participates in a meeting, such as a trade association meeting, where the above topics are discussed;
  • Discusses the above topics with colleagues at other companies, including during social events or in other nonprofessional settings.
  • Receives documents that contain another company’s internal data about employee compensation.

The Guidance notes that this list is by no means exhaustive and states that the presence of a "red flag" does not mean that there has been an antitrust violation. The Guidance also provides that not all information exchanges are illegal and gives examples that an information exchange 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; and
  • enough sources are aggregated to prevent competitors from linking particular data to an individual source.

SESCO recommends that clients review all applicable policy and practices to ensure compliance. For assistance, contact us at 423-764-4127 or by email at sesco@sescomgt.com