United States: DOJ's First Enforcement Action For ‘No-Poaching' Agreements Since The Landmark Antitrust Guidance For HR Professionals

Last Updated: April 17 2018
Article by Mark Krotoski and Richard G.S. Lee

The manner in which the enforcement action was resolved provides further insight as to how antitrust laws will be applied to human-resource decisions in the future. Additional criminal and civil investigations remain pending and are expected to be announced in the near future.

The US Department of Justice's Antitrust Division (DOJ) announced its first civil enforcement action on April 3 following the October 2016 joint policy announcement by DOJ and the Federal Trade Commission (FTC): Antitrust Guidance for HR Professionals (the Antitrust HR Guidance). That milestone guidance was intended "to alert human resource (HR) professionals and others involved in hiring and compensation decisions to potential violations of the antitrust laws" and the agencies' intent to bring future enforcement actions for such antitrust law violations. Critically DOJ also stated for the first time that it would "proceed criminally against naked wage-fixing or no-poaching agreements."1

DOJ initiated the civil enforcement action by filing a complaint in federal court in Washington, DC against "two of the world's largest rail equipment suppliers", alleging that they had engaged in illegal "no-poach" agreements with each other and, later, with a third rail equipment supplier.2 The companies have indicated their intent to stipulate to a civil consent judgment that remains subject to the approval of the court under the terms of the Antitrust Procedures and Penalties Act, 15 USC § 16(b)-(h).

We previously commented on the antitrust issues and implications of the Antitrust HR Guidance both in the United States and internationally.3 We also issued a Frequently Asked Questions summary to address common recurring questions and concerns on this subject.

The new civil enforcement action is instructive and highlights some key takeaways and issues for companies that may become subject to either criminal or civil enforcement inquiries. Since more enforcement actions are expected, the manner in which this case was resolved likely will establish a foundation for future cases.

A number of issues are noteworthy:

  • Scope of Conduct Subject to "No-Poaching" Agreements: The Antitrust HR Guidance focuses on "no-poaching" agreements or wage-fixing agreements. The guidance defines "no -poaching" agreements as agreements "with individual(s) at another company to refuse to solicit or hire that other company's employees."4 The new case provides further guidance on the scope of "no-poaching" agreements from DOJ's perspective.

    The DOJ court filing defines a "no-poaching" agreement as "any Agreement, or part of an Agreement, among two or more employers that restrains any person from cold calling, soliciting, recruiting, hiring, or otherwise competing for (i) employees located in the United States being hired to work in the United States or outside the United States or (ii) any employee located outside the United States being hired to work in the United States."5 This definition broadens the scope of conduct to which the "no-poaching" prohibitions will apply.
  • Per Se Unlawful Conduct: In the civil enforcement action, the DOJ reiterated its position set forth in the Antitrust HR Guidance that "no-poaching" agreements are "per se unlawful horizontal market allocation agreements under Section 1 of the Sherman Act."6 In other words, "the agreement is deemed illegal without any inquiry into its competitive effects."7 The agreements subject to the civil enforcement action were described as per se unlawful.
  • "No-Poaching" Conduct After October 2016 Remains Subject to Criminal Prosecution: As reported in our earlier LawFlash, DOJ has made clear in a series of statements, including those in January 2018 by Assistant Attorney General (AAG) Makan Delrahim, the head of the DOJ Antitrust Division, that no-poaching agreements that are not terminated before October 2016, when the Antitrust HR Guidance was issued, will be subject to criminal investigation and prosecution.

    In this case, the DOJ instituted a civil enforcement action instead of pursuing criminal charges against the defendant companies solely "because the United States uncovered and began investigating the agreements, and the defendants terminated them, before the United States had announced its intent to proceed criminally against such agreements."8 This DOJ investigation extended over a substantial period. If this same conduct had occurred after October 2016, it likely would have been prosecuted as a criminal rather than a civil case. In fact, according to court filings by DOJ, it was only "[a]s a matter of prosecutorial discretion" that DOJ will "pursue No-Poach Agreements entered into and terminated before" October 2016 "through civil actions for equitable relief."9 Based on recent DOJ statements and continuing DOJ focus, a number of criminal investigations are underway. In the near future, criminal cases are expected to be announced by DOJ.
  • Narrowly Tailored Exception for Agreements Ancillary to a Legitimate Business Collaboration: DOJ has previously noted that "no-poaching" agreements may be permitted in limited, narrowly tailored circumstances, that are ancillary to a legitimate business collaboration, such as for joint ventures.10 Thus, "a reasonable Agreement not to solicit, recruit, or hire employees" may be permitted if it "is ancillary to a legitimate business collaboration."11 The court filings noted that this exception was not satisfied in the case based on the past conduct.

    However, the filings left open the possibility that future conduct could meet this exception if the following elements were met. The agreement is (1) "in writing and signed by all parties"; (2) "identif[ies], with specificity, the Agreement to which it is ancillary"; (3) is "narrowly tailored to affect only employees who are reasonably anticipated to be directly involved in the Agreement"; (4) "identif[ies] with reasonable specificity the employees who are subject to the Agreement"; and (5) "contain[s] a specific termination date or event."12 It is strongly recommended that any narrowly tailored agreement be reviewed by experienced antitrust counsel if it is relied upon.
  • Civil Consent Judgment Terms: To remedy the violations alleged in the DOJ complaint, the parties stipulated to a number of compliance steps including
  1. expiration of the final judgment within seven years, subject to a one-time extension if warranted;
  2. appointment of an antitrust compliance officer to ensure compliance with the terms of the final judgment;
  3. notice to all US employees of "the meaning and requirements of the final judgment";
  4. annual communications from the antitrust compliance officer to company "employees that they may disclose to the Antitrust Compliance Officer, without reprisal, information concerning any potential violation of the Final Judgment or the antitrust laws";
  5. notification and copies "to all recruiting agencies, or providers of temporary employees or contract workers, retained by the Defendant" concerning the "Competitive Impact Statement, the Final Judgment, and a cover letter explaining the obligations of the Final Judgment";
  6. notice of the civil enforcement action "to the rail industry through the placement of an advertisement in an industry trade publication to be approved by the United States and the creation of website pages linked to the corporate websites of each Defendant for no less than one year";
  7. a mandate that "the Chief Executive Officer or Chief Financial Officer, and General Counsel of each Defendant separately certify annually to the United States that the Defendant has complied with the provisions of the Final Judgment";
  8. a mandate that "any violation or potential violation of the terms of the Final Judgment" be promptly terminated and reported to DOJ within 60 days, with maintenance of documents concerning the violation;
  9. an obligation to provide ongoing cooperation to DOJ concerning "no-poaching" agreements with any other persons that were not disclosed;
  10. an obligation to give DOJ access to company offices, "upon reasonable notice and a written request," to "inspect and copy" and obtain "electronic or hard copies of, all books, ledgers, accounts, records, data, and documents in the possession, custody, or control of each Defendant, relating to any matters contained in the proposed Final Judgment" and to obtain interviews, "either informally or on the record," of officers, employees, or agents of the companies;13 and
  11. an obligation to ensure non-enforcement of any non-solicitation terms in other contracts.14
  • New Enforcement Terms: DOJ highlighted "several new provisions" as part of the settlement including "that the Division may prove any alleged violations of the decree by a preponderance of the evidence" and the parties agreed to "reimburse American taxpayers for the costs of investigating and enforcing any violations."15
  • International Companies and Employees: In addition to other international issues we recently highlighted, DOJ will not hesitate to bring enforcement actions against multinational companies if the facts apply. The civil enforcement action involves one party that is privately owned with its headquarters in Germany and has wholly-owned subsidiaries in the United States. As noted above, the definition of "no-poaching" agreement used by DOJ applies to "employees located in the United States being hired to work . . . outside the United States" or "any employee located outside the United States being hired to work in the United States."16 As we previously noted, other enforcers are also focusing on the enforcement of antitrust laws on HR decisions. For example, on April 9, the Hong Kong Competition Commission issued new guidance.17
  • Distinguishing Unilateral Conduct: Section 1 of the Sherman Act is violated by "contract[s], combination[s] ... or conspiracy[ies], in restraint of trade or commerce."18 Consequently, "no-poaching" or wage-fixing agreements among competitors for labor are treated as per se violations of the Sherman Act by DOJ.

Unilateral conduct is not impacted by the Sherman Act. As noted in the DOJ court filing, "a Defendant is not prohibited from unilaterally adopting or maintaining a policy not to consider applications from employees of another person, or not to solicit, cold call, recruit or hire employees of another person, provided that the Defendant does not (1) request, encourage, propose, or suggest that another person adopt, enforce, or maintain such a policy; or (2) notify the other person that the Defendant has adopted such a policy."19

We will continue to monitor DOJ and FTC developments in applying the antitrust laws to human-resource decisions. In the meantime, please advise if you have questions or need assistance with review of issues and facts concerning antitrust issues involving HR decisions; compliance training to HR personnel and other executives; review, modification, or mitigation of no-poaching terms; or consideration of mitigation steps such as the Antitrust Division's Leniency Program.

Footnotes

1 Antitrust Guidance, at 4; see also Press Release, Antitrust Division, US Dep't of Justice, Justice Department and Federal Trade Commission Release Guidance for Human Resource Professionals on How Antitrust Law Applies to Employee Hiring and Compensation (Oct. 20, 2016).

2 Press Release, Antitrust Div., US Dep't of Justice, Justice Department Requires Knorr and Wabtec to Terminate Unlawful Agreements Not to Compete for Employees (Apr. 3, 2018), available here; see also Complaint, United States v. Knorr-Bremse AG & Westinghouse Air Brake Technologies Corp., No. 1:18-cv-00747 (DDC Apr. 3, 2018) (Doc. No. 1).

3 See Morgan Lewis, LawFlash: DOJ Antitrust Division Announces Imminent Criminal Prosecution for 'No Poaching' Agreements (Feb. 6, 2018); see also Morgan Lewis, LawFlash: Are Your Employment Practices in Breach of Antitrust Law? (Mar. 30, 2018); Morgan Lewis, LawFlash: FTC and DOJ Issue Antitrust Guidance for HR Professionals (Nov. 1, 2016).

4 Antitrust HR Guidance, at 3.

5 Competitive Impact Statement, at 13 (footnote omitted), United States v. Knorr-Bremse AG & Westinghouse Air Brake Technologies Corp., No. 1:18-cv-00747 (DDC Apr. 3, 2018) (Doc. No. 3) hereinafter Competitive Impact Statement.

6 Competitive Impact Statement, at 12.

7 Antitrust HR Guidance, at 3.

8 Competitive Impact Statement, at 11.

9 Id.

10 Antitrust HR Guidance, at 3. "Legitimate joint ventures (including, for example, appropriate shared use of facilities) are not considered per se illegal under the antitrust laws."

11 Competitive Impact Statement, at 8 ("No-Poach Agreements that are not reasonably necessary to any separate, legitimate business transaction or collaboration are properly considered per se unlawful market allocation agreements under Section 1 of the Sherman Act."); id. at 3 ("The No-Poach Agreements were not reasonably necessary to any separate, legitimate business transaction or collaboration between the companies"); see also Press Release, Antitrust Div., US Dep't of Justice, Justice Department and Federal Trade Commission Release Guidance for Human Resource Professionals on How Antitrust Law Applies to Employee Hiring and Compensation (Oct. 20, 2016), available here. ("Going forward, the Justice Department intends to criminally investigate naked no-poaching or wage-fixing agreements that are unrelated or unnecessary to a larger legitimate collaboration between the employers.") (emphasis added).

12 Proposed Final Judgment, § V(B), United States v. Knorr-Bremse AG & Westinghouse Air Brake Technologies Corp., No. 1:18-cv-00747 (DDC Apr. 3, 2018) (Doc. No. 2-1, Exh. A) hereinafter Proposed Final Judgment; see also Competitive Impact Statement, at 13 (explaining terms).

13 Competitive Impact Statement, at 14-17.

14 Proposed Final Judgment, § V(C).

15 Press Release, Antitrust Div., US Dep't of Justice, Justice Department Requires Knorr and Wabtec to Terminate Unlawful Agreements Not to Compete for Employees (Apr. 3, 2018), available here.

16 Competitive Impact Statement, at 13 (footnote omitted), United States v. Knorr-Bremse AG & Westinghouse Air Brake Technologies Corp., No. 1:18-cv-00747 (DDC Apr. 3, 2018) (Doc. No. 3).

17 Press Release, Honk Kong Competition Commission, Competition Commission advises on practices in employment marketplace (Apr. 9, 2018), available here.

18 15 USC § 1. In a court filing, DOJ clarifies that "agreement" includes "any agreement, understanding, pact, contract, or arrangement, formal or informal, oral or written, between two or more persons." Competitive Impact Statement, at 13 n.9.

19 Competitive Impact Statement, at 14.

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