While most business executives understand that the antitrust laws bar them from colluding with competitors on the prices charged for the goods and services they sell, some are unaware that the antitrust laws apply with equal force to collusion in employee recruitment and compensation practices. With the issuance on October 20, 2016 of their joint Antitrust Guidance for Human Resource Professionals (“the Guidance”), the two major federal antitrust authorities, the FTC and the Department of Justice, attempt to remedy this lack of awareness.[1]
Unlike most other antitrust policy statements,[2] this 11-page document offers little new insight on the enforcement authorities’ priorities or the kinds of evidence they will look to in bringing enforcement actions. Instead, it provides a concise and pragmatic overview of antitrust issues of which human resource professionals should be mindful in navigating the competitive environment for recruitment and compensation of employees.
After noting that “HR professionals often are in the best position to ensure that their companies’ hiring practices comply with the antitrust laws,” the Guidance explains why competition among employers is as important as competition among sellers:
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. Consumers can also gain from competition among employers because a more competitive workforce may create more or better goods and services.
Lest there be any confusion, the Guidance explains that antitrust considerations in HR matters remain relevant “regardless of whether the firms make the same products or compete to provide the same services,” and that collusion among competing employers is impermissible “even if they are motivated by a desire to reduce costs.”
The Guidance identifies two categories of HR activities that may run afoul of the antitrust laws: agreements among employers not to recruit certain employees or not to compete on terms of compensation; and sharing sensitive information with competitors. As to the former, the Guidance states that an individual may not agree with individuals at another company about employee salaries or other terms of compensation, either at a specific level or within a range (so-called wage-fixing agreements); or agree with such individuals to refuse to solicit or hire the other company’s employees (so-called “no poaching” agreements).
The Guidance notes that agreements need not be explicit: the government may infer collusion from mere discussions or parallel behavior with respect to compensation and recruitment issues.[3] The Guidance also states that so-called naked agreements, i.e., those that are “separate from or not reasonably necessary to a larger legitimate collaboration between the employers,” are per se illegal, meaning that result in liability without any inquiry into their competitive effects. The Justice Department intends to bring criminal prosecutions, possibly including felony charges against business executives, against naked wage fixing and no poaching agreements.
As to the second category of potentially unlawful conduct, the Guidance explains that sharing information with competitors about terms and conditions of employment can create liability when they have or are likely to have an anticompetitive effect. Again, evidence of information sharing that is likely to facilitate collusion may contribute to a finding of liability even in the absence of an express or implied agreement to use the shared information to collude.
The Guidance does acknowledge, however, that not all information sharing need be anticompetitive. The government generally will not challenge information sharing if the following conditions are met:
- 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.[4]
In addition to laying out the principles that underlie antitrust enforcement in HR matters, the Guidance includes a relatively lengthy section of Q&A which applies those principles to real-life situations likely to be encountered by HR professionals. It concludes with a recommendation to seek legal advice when in doubt, and information on how to report suspected violations to the authorities.
Issuance of the Guidance is a welcome development. While it generally does not break new ground, it is concise and lays out the issues in terms that should be easy to follow by non-lawyers. In-house and outside counsel alike will find it a useful resource for educating their HR clients.
[1] The Guidance is accessible at https://www.justice.gov/atr/guidelines-and-policy-statements-0.
[2] See, e.g, FTC and DOJ, Horizontal Merger Guidelines (Aug. 19, 2010), accessible at https://www.justice.gov/atr/horizontal-merger-guidelines-08192010.
[3] To the extent that the Guidance suggests that parallel conduct alone may suffice to give rise to an antitrust violation, it appears to exaggerate the liability risk. See Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 227 (1993) (“conscious parallelism” is “not in itself illegal”); Theatre Enterprises., Inc. v. Paramount Film Distribution Corp., 346 U.S. 537, 541 (1954) (“Circumstantial evidence of consciously parallel behavior may have made heavy inroads into the traditional judicial attitude toward conspiracy; but ‘conscious parallelism’ has not read conspiracy out of the Sherman Act entirely”). Nonetheless, evidence of conscious parallelism, while not in and of itself sufficient, may contribute to a finding of liability, so human resource professionals are well advised to refrain from activity that may fall under that rubric.
[4] The FTC and the Justice Department specified similar conditions for permissible exchanges of price and cost information among healthcare providers in their 1996 Statements of Antitrust Enforcement Policy in Healthcare at p. 50, accessible at https://www.justice.gov/atr/statements-antitrust-enforcement-policy-health-care.