Recruiting Employees and the FTC/DOJ – Opening the Door to Criminal Liability!
So you need to hire some employees, and you want to pay them well, but not more than necessary. You call a friend who works for one of your competitors and ask what her company is paying new hires in these positions. Your friend tells you, and also mentions what benefits they’re currently offering. You say that your company will “cap” its offered salaries so they don’t exceed what your friend’s company pays – then proceed with your hiring plans.
Believe it or not, according to the Federal Trade Commission (FTC) and the U.S. Department of Justice Antitrust Division (DOJ), you and your friend have likely just committed a per se violation of the U.S. antitrust laws that can result in civil and criminal liability for you and your friend and your respective employers.
The FTC and the DOJ have jointly issued Antitrust Guidance for Human Resources Professionals and a related document entitled Antitrust Red Flags for Employment Practices. According to the Guidance, the following practices are unlawful:
*Agreeing with a competitor to set wages or benefits at a certain level, or agreeing that you will offer similar terms and conditions of employment.
*Agreeing not to hire a competitor’s employees.
*Exchanging company-identifiable information with competitors about employee wages, benefits, or terms and conditions of employment – whether formally or informally, in writing or orally, at work, at trade shows, or in social settings.
*Discussing any of the above topics with competitors.
The White House has also issued a Fact Sheet on the FTC-DOJ Guidance, tying it in with other Obama Administration measures designed to protect workers, including requiring paid sick leave and discouraging aggressive use of non-compete agreements. It is unclear at this time what position President-Elect Trump will take on these issues.
The guiding principle behind the antitrust laws is that competition is good for consumers because it allows companies to improve their products and lower prices. When companies get together and agree that they will not undercut each other’s prices, refrain from operating in another company’s geographical area, or not implement certain innovations or improvements, those “conspiracies” hurt the consuming public.
Applied to the hiring and recruitment process, the FTC-DOJ Guidance document says, “Just as competition among sellers in an open marketplace gives consumers the benefits of lower prices, higher quality products and services, more choices and greater innovation, competition among employers helps actual and potential employees through higher wages, better benefits, or other terms of employment.”
Per Se Violations
Certain practices are treated by the FTC-DOJ as “per se violations,” meaning that they violate the law whether they actually have an adverse effect on competition or not.
“Wage-fixing.” An agreement between competitors to keep compensation and benefits at or below a certain level is called “naked wage-fixing” by the FTC-DOJ and is subject to criminal penalties, as well as civil damages for the employees who were adversely affected. Charges may be brought “against the culpable participants in the agreement, including both individuals and companies.”
“No-poaching” agreements. An agreement between competitors not to recruit or hire each other’s employees, like a naked wage-fixing agreement, is considered “hardcore cartel conduct” and is subject to criminal and civil liability. However, the FTC-DOJ qualify this: “Legitimate joint ventures (including, for example, appropriate shared use of facilities) are not considered per se illegal under the antitrust laws.”
Sharing information with competitors about wages, benefits, and other terms and conditions of employment. Merely sharing information with a competitor is not per se illegal and does not result in criminal prosecution, but it may result in civil antitrust liability if the FTC-DOJ find that it has an “anticompetitive effect”. According to the Guidance, an industry Human Resources organization was sued for facilitating the exchange of wage information for nurses employed at various member hospitals. As a result, the wages for nurses in the relevant geographical area were kept “artificially low”. (The HR organization entered into a Consent Judgement to resolve the case.)
On the other hand, information exchanges may be lawful if:
*a neutral third party manages the exchange;
*the exchange involves information that is relatively old [according to guidance issued by the FTC-DOJ in the 1990s (Statement 6) “old” would be three months old or older];
*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 [according to the same 1990s guidance referenced above, this would mean a minimum of five sources].
Quoted from FTC-DOJ Guidance at 5.
In the context of a merger or acquisition, “[s]uch information gathering may be lawful if . . . appropriate precautions are taken.”
The same legal principles apply to all types of HR information sharing among competitors, regardless of whether the sharing is in writing, oral, “unwritten,” via a “gentleman’s agreement,” or through a trade show or industry organization. There is no exception for non-profit organizations, and a desire to cut costs is not a defense.
Preventive guidance for employers
The Antitrust Division of the DOJ offers a “business review process” that allows employers to ask in advance about whether a proposed practice or merger would be deemed to be a violation of the law. Alternatively, employers can request an “advisory opinion” from the FTC. Employers should consult with their antitrust counsel before pursuing either of these routes.
“Leniency” policies: Throwing each other under the bus?
The government encourages companies and their HR professionals to turn each other in by way of its “corporate leniency” and “leniency for individuals” policies. These policies essentially provide that the Antitrust Division will not bring criminal charges against the first person or entity to report the alleged violation if certain other conditions are also present. If, for example, an HR professional at Company A suggests entering into a no-poaching agreement to an HR professional at Company B, the latter may report the conduct to the Antitrust Division. If Company B and the HR professional at Company B meet the other requirements for leniency, then the government will not pursue criminal charges against Company B or its HR professional.
On the other hand, if Company B and its HR professional keep quiet about the conversation and then Company A gets caught, it will be too late for Company B and its HR professional to qualify for leniency, and they may be subject to prosecution as well.
Employers and HR professionals who are considering reporting violations or seeking leniency should obtain advice from their antitrust counsel before doing so.
This article was written by Robin Shea of Constangy, Brooks, Smith & Prophete, LLP