In 2016, the U.S. Department of Justice Antitrust Division and the Federal Trade Commission alerted human resources professionals to potential criminal violations of the antitrust laws in hiring and compensation decisions. Despite the warning, over three years have passed without a single such indictment being filed. The author of this article discusses the issue.
In a October 2016 guidance document,[1] the U.S. Department of Justice Antitrust Division ("DOJ") and the Federal Trade Commission alerted human resources professionals to potential violations of the antitrust laws in hiring and compensation decisions. The guidance included the announcement that, "Going forward, the DOJ intends to proceed criminally against naked wage-fixing or no-poaching agreements." A naked agreement is one that is not ancillary to a broader, legitimate collaboration between businesses.
The DOJ’s decision to proceed criminally against such agreements is significant. Although the Sherman Act allows the DOJ to proceed either criminally or civilly against antitrust violators, before the guidance was issued the DOJ had treated agreements between competitors not to solicit each other’s employees as merely civil violations. Following the guidance, companies and individuals suddenly had to worry about criminal fines and potential jail sentences for entering into such agreements. Nevertheless, over three years have now passed without a single such indictment being filed.
The DOJ's No-Poach Activity
There were indications [2] early in 2018 that criminal wage-fixing and no-poach prosecutions would be forthcoming. In January 2018, Assistant Attorney General for Antitrust Makan Delrahim said that the DOJ had several criminal no-poach investigations underway, that he had been "shocked" by how many such agreements are out there, and that announcements would be made in the coming months. But no such announcements have come from the DOJ.
This is not to say that the DOJ has been on the sidelines with respect to no-poach agreements since issuing the guidance document. In April 2018, the DOJ reached a civil settlement of no-poach allegations with two of the world’s largest rail equipment suppliers, Knorr-Bremse AG and Westinghouse Air Brake Technologies Corporation ("Wabtec"). Knorr and Wabtec had agreed in 2009 not to solicit each other’s employees. Because the conduct had occurred prior to the October 2016 announcement of the new policy, the DOJ did not charge a criminal violation in that case. In addition to that settlement, the DOJ has also filed several "statements of interest" in civil no-poach cases throughout the country.
In Seaman v. Duke University, a federal case involving an alleged agreement between Duke University and the University of North Carolina not to hire each other’s faculty, the DOJ filed a statement of interest supporting the plaintiff’s position on the proper standard to apply in evaluating the no-poach agreement. In its statement, the DOJ urged the court to evaluate the agreement under the per se standard, rather than the harderto-prove "rule of reason" standard, if the evidence proved that Duke and UNC had entered into a naked no-poach agreement. If, on the other hand, the evidence showed that the agreement was reasonably necessary to a separate, legitimate business transaction or collaboration between the employers, it should be judged under the rule of reason, the DOJ argued.
The DOJ also filed statements of interest in several related cases in Washington state involving no-poach provisions in franchise agreements among fast-food companies. The DOJ sided with the defendants in those cases and urged the court to apply the rule of reason, and not the per se standard, when determining whether the plaintiffs had stated a claim that the agreements violated Section 1 of the Sherman Act. The reason that the DOJ argued for application of the rule of reason in those cases is that, unlike the Seaman v. Duke case, the alleged agreements were vertical ones between franchisors and their franchisees. Vertical arrangements are almost always assessed under the rule of reason.
No-Poach Agreements Still A "High Priority" for the DOJ
Last fall, the DOJ held a public workshop on competition in labor markets. In his remarks [3] at the workshop, Assistant Attorney General Delrahim sought to reassure the audience that the DOJ was still focused on bringing criminal wage-fixing and no-poach cases: "While we cannot comment on the status or the timing of our criminal no-poach and wage-fixing investigations, I want to reaffirm that criminal prosecution of naked no-poach and wage-fixing agreements remains a high priority for the Antitrust Division." Indirectly addressing the lack of prosecutions, he stated, "The success of the department in this initiative is not based on quantitative metrics, but on the qualitative performance of our investigative work. That is especially true in matters implicating an individual’s liberty interest."
Some have speculated that the DOJ is waiting for the perfect set of facts before bringing an indictment in a wage-fixing or no-poach case. It is worth noting that since Delrahim’s January 2018 statement that there would be forthcoming announcements of criminal prosecutions, the DOJ has lost several high-profile antitrust trials, including the failed AT&T/ Time Warner merger challenge in June 2018 and the acquittal [4] of three London-based former foreign exchange traders of price-fixing charges in October 2018. The DOJ reversed this losing streak in late November, winning a conviction against a former JPMorgan foreign exchange trader. Nonetheless, the DOJ may be hesitant to bring charges unless the case is airtight, so as not to risk another loss at trial.
Severe Penalties for No-Poach Violators
Whatever the reason for the lack of prosecutions, the DOJ wields a significant hammer for violators. The Sherman Act contains severe penalties for anticompetitive agreements such as wage-fixing or no-poach agreements. Violations are punishable by up to $100 million in fines for companies and $1 million in fines for individuals, or twice the gross gain or loss from the offense, whichever is greater. Individuals can be sentenced to up to 10 years of imprisonment. In addition, private lawsuits—which inevitably follow such prosecutions—could lead to companies paying significant damages. And in antitrust cases, plaintiffs are entitled to three times the amount the plaintiff actually suffered, plus attorney fees.
Thus, wage-fixing or no-poach agreements could result in serious consequences. Regardless of when the DOJ brings its first indictment, these consequences should serve as an adequate deterrent for any company or individual contemplating such agreements.
*Christopher H. Casey is a partner at Duane Morris LLP concentrating his practice in the areas of White-Collar Defense and criminal and civil antitrust litigation. He served as a deputy associate attorney general for the U.S. Department of Justice from 2014 to 2016, overseeing the antitrust and tax divisions and the U.S. trustee program. He may be reached at chcasey@duanemorris.com.
Notes
[1] https://www.justice.gov/atr/file/903511/download.
[2] https://www.duanemorris.com/alerts/enforcement_against_no_poach_agreements_rise_0718.html
Reprinted from Employee Relations Law Journal, Spring 2020, Volume 45, Number 4, pages 20–22, with permission from Wolters Kluwer, New York, NY, 1-800-638-8437, www.WoltersKluwerLR.com
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