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New Guidance for Human Resource Professionals to Avoid Antitrust Violations

In today’s regulatory and enforcement environment, compliance with the antitrust laws is not solely the province of sales personnel. Human resource professionals also need to be aware of their obligations to avoid anticompetitive behavior. In October, the Antitrust Division of the U.S. Department of Justice (“Antitrust Division”) and the Federal Trade Commission (“FTC”) published guidance[1] to alert human resource (“HR”) professionals and other personnel to potential antitrust violations that could have serious civil and criminal consequences for their companies and themselves personally. Potential violations highlighted include anti-poaching and wage fixing agreements and communications among competing employers concerning any aspects of competition for employees or the terms and conditions of employment. In general, HR professionals should avoid entering into agreements, written, oral or tacit, regarding terms of employment with companies that compete to retain or hire employees.

The guidance points out that violations of the antitrust laws likely occur (i) when companies agree to limit employees’ salaries or other compensation terms at a certain level or within a certain range – wage-fixing agreements; or (ii) when companies agree not to solicit or hire one another’s employees – “no poaching” agreements. Examples of no poaching agreements include agreements among companies not to “cold call” each other’s employees and agreements to limit the hiring of employees who currently work at competing companies. Notably, the guidance makes clear that an oral or written agreement is not required to find a violation of the antitrust laws – circumstantial evidence such as “discussions and parallel behavior” can lead to an inference of an unlawful agreement among employers.

Moreover, naked no-poaching or wage-fixing agreements among employers are per se illegal under the antitrust laws, which means, absent a larger legitimate collaboration between employers, such as a joint venture to which such an agreement is reasonably necessary, the agreement is deemed illegal without any inquiry into the terms of the agreement or its competitive effects. The Antitrust Division intends to criminally investigate allegations of no-poaching and wage-fixing arrangements, and, if naked no-poaching or wage-fixing agreements are uncovered, it may exercise its prosecutorial discretion and bring criminal charges against culpable companies and individuals.

In addition to criminal proceedings, the Antitrust Division and FTC can bring civil enforcement actions against employers for violations of the antitrust laws, and injured parties (e.g., an employee or other private individual injured by an unlawful agreement among companies) can bring civil lawsuits for treble damages – three times the amount of damages the injured party actually suffered.

In addition, employers should caution HR personnel with respect to the sharing and exchanges of information about terms and conditions of employment with competitors as such an exchange (even absent a formal agreement to share information) “could serve as evidence of an implicit illegal agreement” depending on the circumstances. For example, periodic exchanges of compensation and benefits information among competitors in a low employer industry could constitute an antitrust violation because the exchange could have an anticompetitive effect. Such arrangements -- agreements to share information -- are not per se illegal, but can be found anticompetitive.

Information exchanges do not always violate the antitrust laws. They may be lawful when, for example: (1) a neutral third party makes the exchange; (2) the exchange involves relatively old information; (3) the information is aggregated to protect the identity of the underlying sources; and (4) enough sources are aggregated to prevent competitors from linking particular data to an individual source. In addition, a buyer in a potential merger or acquisition will likely need to obtain competitively sensitive information when evaluating whether to pursue the deal – information gathering in this case is likely lawful if the potential transaction is legitimate and the information is no more detailed than reasonably necessary.

Once a merger or acquisition is agreed upon, however, the parties must take special care not to let information exchange become, in effect, pre-merger integration. This is particularly true where the transaction is reportable, and requires regulatory approval, under the Hart Scott Rodino Antitrust Improvements Act (“HSR). The Antitrust Division and the FTC use the term “gun-jumping” to describe efforts to integrate the merger partners implemented before the transaction is approved. Gun-jumping is said to violate both § 1 of the Sherman Act and the HSR act itself. In the regulators’ view full competition must prevail to the bitter end. Thus, pre-merger information exchange concerning salaries, benefits or other terms of employment could be attacked as “gun-jumping,” particularly if efforts to adjust or equalize employment terms begin before regulatory approval.

Accordingly, in light of this new guidance, employers must be sure HR professionals are kept abreast of antitrust compliance issues and receive necessary training. Employers must ensure HR and other personnel are cautious in their communications with competitors and avoid agreeing to any arrangements that restrict competition on terms of employment or provide for the exchange of competitively sensitive information. In particular, employers must not enter into naked no-poaching or wage-fixing agreements that could subject the employer and culpable individuals to criminal liability. Further, never forget that agreements can be tacit. Circumstantial evidence of discussions among competitors coupled with parallel anticompetitive behavior can support a finding that an agreement existed even if an agreement is nominally disclaimed.

For more information on the topic discussed, contact L. Donald Prutzman at prutzman@thsh.com or Andre R. Jaglom at jaglom@thsh.com.

*A special thanks to Andrew Yacyshyn for his contributions to this article.


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