An ounce of prevention: Minimizing US antitrust risk when evaluating labor practices

Introduction

As a result of the economic distress caused by the novel coronavirus (COVID-19), many companies are evaluating, and indeed in some cases have already implemented, cuts to their workforces, reductions in pay, benefits, and hours, or both. Some companies who have seen increased demand for their services are offering pay and benefit increases for their employees. Other companies are continuing to assess how to best position their employees to work remotely, including by offering new benefits to facilitate working from home.

Companies and their human resources professionals may be interested in how others are responding to these challenges and what actions they are taking. But it is important that companies take appropriate steps to ensure that their actions comply with antitrust laws when evaluating what actions they will take regarding their employees.

Over the last few years, the US Federal Trade Commission (“FTC”) and the Department of Justice (“DOJ”) have paid increasing attention to labor practices that may violate antitrust laws and have repeatedly signaled that they will investigate, and in the case of the DOJ, prosecute, companies that reach anticompetitive agreements that affect labor practices. State attorneys general have also launched their own investigations into labor practices that may violate antitrust law and private plaintiffs have sued employers under the antitrust laws for allegedly anticompetitive hiring and wage-fixing agreements.

The DOJ and FTC have been particularly focused on three practices they view as especially problematic:

1. Agreements among companies to fix wages
2. Agreements among companies not to hire or solicit each other’s employees
3. Information exchanges that potentially facilitate anticompetitive practices 

The penalties for entering such agreements can be harsh: the DOJ may bring “criminal, felony charges against the culpable participants in the agreement, including both individuals and companies” for certain practices; the FTC or DOJ could bring civil enforcement actions; and an employee injured by such an illegal agreement could bring a civil lawsuit for treble damages (i.e. three times the damages the party actually suffered).

Here, we describe the particular practices that the DOJ and FTC have focused their attention on as well as the issues companies will want to consider to minimize their antitrust risk. 

Antitrust guidance for HR professionals

Acknowledging human resources (“HR”) professionals “often are in the best position to ensure that their companies’ hiring practices comply with the antitrust laws,” the FTC and DOJ jointly released Antitrust Guidance for HR Professionals (“HR Guidance”) in October 2016. The goal of this HR Guidance was to alert those in HR, as well as others involved in hiring and compensation decisions, about practices that could violate US antitrust law. 

Wage-fixing and no-hire agreements

The agencies’ principal focus in the HR Guidance was on wage-fixing agreements and no-hire agreements, conduct which the agencies consider per se violations of the antitrust laws.

Per se illegality means that the law conclusively presumes such agreements are anticompetitive, “without any inquiry into its competitive effects.” Significantly, a finding of per se illegality can make it difficult for a defendant to prevail in an antitrust lawsuit, as it limits the range of defenses a defendant can offer.

Wage-fixing agreements are those where an individual “agrees with individual(s) at another company about employee salary or other terms of compensation, either at a specific level or within a range.” The agencies broadly define wages – thus they may not just investigate or prosecute agreements about wages and salaries, but also agreements to offer or not offer certain benefits. In addition, wage-fixing agreements encompass more than agreements to set wages or salaries at a particular level; the agencies view agreements to limit wage increases to a certain percentage (or decrease them by a certain percentage) or hold them steady as forms of wage-fixing agreements as well.

No hire agreements are those where an individual “agrees with individual(s) at another company to refuse to solicit or hire that other company’s employees.” Like wage fixing, the agencies broadly define the concept of competitors. Companies do not need to make the same product or compete to provide the same services to be competitors. In the agencies’ view, companies are competitors if they simply “compete for the same types of employees.” Thus, anticompetitive activity can be found even among companies that do not directly compete against each other – other than as employers.

Though the HR Guidance acknowledges that “[a]ny company, acting on its own, may typically make decisions regarding hiring, soliciting, or recruiting employees,” it advises that “the company and its employees should take care not to communicate the company’s policies to other companies competing to hire the same types of employees, nor ask another company to go along.” This is especially important to remember when deciding whether or how to interact with competitors as the antitrust laws take a very broad view of what constitutes an agreement: an agreement does not have to be in writing or even express; its existence can be inferred from other evidence, including discussions among competitors.

Information sharing

The HR Guidance also addressed information sharing, which is another practice subject to antitrust scrutiny. Though not per se illegal, “[s]haring information with competitors about terms and conditions of employment can also run afoul of the antitrust laws” and “could serve as evidence of an implicit illegal agreement.” This is true “even if an individual does not agree explicitly to fix compensation or other terms of employment.” For example, the agencies have advised that “periodic exchange of current wage information in an industry with few employers could establish an antitrust violation because . . . the data exchange has decreased or is likely to decrease compensation.”

The legality of information exchanges was addressed in Todd v. Exxon, 275 F.3d 191, 199 (2d Cir. 2001), a Second Circuit case written by then-Judge Sonia Sotomayor. Citing previous Supreme Court precedent, the Todd Court recognized information exchanges could form the basis of an antitrust violation, even if they were not per se illegal. The Second Circuit identified several factors that courts should consider to determine whether an information exchange may violate antitrust law, including (1) the structure of the industry involved” and (2) the “nature of the information exchanged. After considering the time frame of the data, the specificity of the information, the public availability of the information, as well as the frequency of meetings between competitors, the Todd Court ultimately found the “characteristics of the data exchange in this case are precisely those that arouse suspicion of anticompetitive activity under the rule of reason.”

To ensure that any information exchange complies with antitrust law, the HR Guidance provided several tips to conducting information exchanges. The HR Guidance recommends that:

• 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
• Enough sources are aggregated to prevent competitors from linking particular data to an individual source

Conclusion

Companies should always be careful when interacting with competitors, even when circumstances may seem to call for collaboration. This is especially true when dealing with employment issues, which will likely be a subject of intense scrutiny in the coming months.

In light of the HR Guidance, companies should ensure that their HR departments are aware of the potential antitrust risks interactions with competitors can pose and how to handle inquiries from competitors about employment practices. In the agencies’ own words: “A desire to cut costs is not a defense.”

Though it is generally permissible for companies to stay abreast of their fellow competitors’ behavior and even follow suit, companies should avoid communicating with competitors about employee compensation and hiring. When making decisions about their own employees, companies should thoroughly document their independent decision making process.