In what has commonly been referred to as the “Great Resignation,” nearly 50 million people voluntarily resigned from their jobs in 2021.[1] The majority of those resigning sought a higher paying or better opportunity with another employer.[2] Well before the impacts of the COVID-19 pandemic, millennials – the largest generation in the workforce[3] – garnered a reputation for job-hopping.[4]
In an era of unprecedented employee mobility, employers face increasing challenges retaining top talent. Compounding the social challenges with retaining talent is the increased scrutiny on non-compete agreements between employers and employees by courts, legislators, and regulators.[5] As a result, employers may seek other means to protect their interests and avoid the disruption and costs associated with employee departures, such as an agreement with their competitors not to poach each other’s employees or an agreement to set a cap on wages. Employers tempted to proceed along these lines must be aware of the significant antitrust exposure that can result from these types of arrangements.
No-Poaching and Wage-Fixing Agreements
“No-poach agreements” are any agreement between competitors not to hire, solicit, recruit, or cold-call each other’s employees, while “wage-fixing agreements” are any agreement between competitors to: (1) fix a particular salary, set salaries at a certain level or within a certain range, or follow certain guidelines;
(2) increase salaries by an agreed percentage; and/or (3) maintain or lower salaries.
Are these types of agreements illegal? The answer is, not surprisingly, it depends.
The Sherman Act
Section 1 of the Sherman Act provides that “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.” The Supreme Court has long interpreted this section to prohibit only unreasonable restraints on trade.[6]
To determine whether a restraint on trade is unreasonable, courts apply one of two rules: the per se rule or the rule of reason.[7] Restraints can be unreasonable per se because they almost always tend to restrict competition.[8] Whether no-poaching or wage-fixing agreements are illegal largely turns on which rule applies. Historically, the per se rule has applied to agreements between direct competitors to fix prices, allocate markets or customers, restrict output, or boycott competitors. Restraints that are not unreasonable per se are judged under the rule of reason. The rule of reason requires courts to conduct a fact-specific assessment of market power and market structure to assess the restraint’s actual effect on competition.[9]
The Sherman Act imposes criminal penalties of up to $100 million for a corporation and $1 million for an individual, along with up to 10 years in prison.[10] Additionally, an employer can be held liable for civil damages, including treble damages and attorneys’ fees.[11]
The Initial DOJ Civil Actions
In 2010, the Antitrust Division of the Department of Justice (DOJ) began bringing civil actions against several Silicon Valley companies, alleging “no cold-call” agreements violated the Sherman Act.[12] Soon thereafter, private plaintiff class action suits followed on similar theories,[13] which resulted in headline- grabbing settlements for hundreds of millions of dollars.[14]
The DOJ Guidance
In 2016, the DOJ and FTC issued “Antitrust Guidance for Human Resources Professionals” (the Guidance).[15] The Guidance addressed no-poaching and wage-fixing agreements.[16] The Guidance’s stated purpose was to “alert human resource (HR) professionals and others involved in the hiring and compensation decisions to potential violations of the antitrust laws.”[17]
The Guidance claimed that “naked” wage-fixing or no-poaching agreements among employers are per se illegal.[18] The DOJ explained that a naked agreement is one that is “separate from or not reasonably necessary to a larger legitimate collaboration between the employers.”[19]
Notably, the Guidance announced a significant enforcement policy shift. The DOJ stated, “going forward, [it] intends to proceed criminally against naked wage fixing or no-poaching agreements.”[20] The Guidance explained that such agreements “eliminate competition in the same irredeemable way as agreements to fix product prices or allocate customers, which have traditionally been criminally investigated and prosecuted as hardcore cartel conduct.”[21]
The DOJ Criminal Enforcement Actions
More than four years after the Guidance came out, the DOJ began following through on its stated intention to pursue criminal charges for naked no-poaching and wage-fixing agreements.[22] As was the case with the DOJ’s first civil enforcement actions, private litigants have tacked on class action suits mirroring the indictments.[23]
In these cases, the DOJ contends that the arrangements at issue are per se unlawful under the Sherman Act. In both United States v. Jindal, the first criminal wage-fixing case brought by the DOJ, and United States v. DaVita Inc., the first criminal no-poaching case brought by the DOJ, the court denied the defendants’ motions to dismiss.[24] However, the jury recently returned verdicts for the defense in each case.[25]
Avoiding Liability: Best Practices
These types of cases often arise because HR professionals or executives enter into agreements with competitors, unaware of the antitrust implications. While the initial wave of cases involved large Silicon Valley tech companies, three of the most recent indictments involve relatively small health care companies.[26] Notwithstanding the recent defense verdicts in the criminal proceedings, employers – regardless of size or industry[27] – should ensure they have procedures and policies in place to mitigate their antitrust exposure.
Employers may want to provide training for their employees and executives involved in hiring and compensation decisions to educate them about the potential consequences of no-poaching and wage- fixing agreements.
- The DOJ Interprets Agreement, Competitors, and Compensation Broadly
Employers should be cognizant of three important facts. First, agreements not to hire or solicit a competitor’s employees or to fix wages can run afoul of the antitrust laws no matter if the agreement is informal or formal, written or unwritten, or spoken or unspoken.[28] Second, these agreements can violate the antitrust laws regardless of whether the companies subject to the agreement make the same products or compete to provide the same services. If the companies compete to hire or retain employees, they are considered competitors in the employment marketplace.[29] Third, specifically with regard to wage-fixing agreements, the DOJ interprets wages broadly to include any element of compensation, including, for example, gym memberships, parking, transit subsidies, meals or meal subsidies and similar benefits of employment.