The Department of Justice (DOJ) recently announced it will criminally investigate allegations that employers have agreed among themselves on employee compensation or not to solicit or hire each others employees. Human resources professionals should become familiar with the types of agreements that may subject them and their employers to criminal liability.
Although many HR professionals have heard of anti-trust laws, few realize that employment practices may violate those laws. In general, anti-trust laws prohibit agreements between businesses not to compete with one another. One common example of a practice that violates anti-trust laws is an agreement between businesses in a particular industry to sell a good or service at an agreed-upon price. This practice tends to benefit businesses at the expense of consumers because it essentially eliminates the free-market competition that drives down the ultimate cost of the good or service to consumers. Most anti-trust laws were passed in the late nineteenth and early twentieth centuries to prevent certain industries from fixing the prices of commonly used goods and services.
The joint initiative of the DOJ and Federal Trade Commission (FTC) both of which are responsible for enforcing anti-trust laws envision a new use for these old laws. The DOJ and FTC have determined that two widespread practices violate existing anti-trust laws: (1) agreements among employers not to recruit certain employees (no poaching agreements); and (2) agreements among employers not to compete on terms of compensation (wage-fixing agreements). Each is discussed briefly below.
No Poaching Agreements
Many industry groups make agreements no poaching agreements not to solicit or hire each others employees. Employers frequently make these agreements to maintain a stable workforce for their organizations. Such agreements also are a response to the age-old problem of an employer spending significant time and resources training an employee on a particular skill, only to have that employee leave and join a competing firm or organization, who then gets the benefit of a trained employee without having to pay for the cost of that training. While it is understandable why employers might agree to a no poaching agreement among themselves, going forward such agreements may subject them to criminal prosecution.
The other focus of this new initiative is agreements regarding the wages and other forms of compensation businesses within a particular industry will pay certain groups or categories of employees. One example of such a wage-fixing agreement involved the Arizona Hospital & Healthcare Association. That association allegedly attempted to set a uniform billing rate schedule that the states hospitals would pay for temporary and per diem nurses. The DOJ filed a lawsuit and obtained a consent judgment prohibiting the practice under federal anti-trust laws. As the new initiative makes clear, such wage-fixing agreements need not fix a specific dollar-amount for paying particular groups of employees; even establishing a range of wages for employees can violate anti-trust laws.
It is important to understand that no poaching and wage fixing agreements need not be formal, written agreements between employers. Even implicit unspoken but widely understood no poaching and wage-fixing agreements or practices may run afoul of anti-trust laws. Further, agreements that are entered into with a third-party intermediary are also unlawful.
HR professionals particularly should be concerned about this initiative given their role in hiring and establishing pay for new employees. Indeed, the DOJ and FTC published a lengthy document entitled Anti-Trust Guidance for Human Resource Professionals that describes these unlawful practices and gives numerous examples of unlawful conduct by human resources personnel that they state will be prosecuted criminally. Although it is unclear whether the incoming Trump Administration will pursue this initiative with the same zeal as its predecessor, businesses and their human resources departments should take no chances.
The St. Louis employment attorneys at McMahon Berger have been representing employers across the country in labor and employment matters for sixty years and are available to discuss these issues and others. As always, the foregoing is for informational purposes only and does not constitute legal advice regarding any particular situation as every situation must be evaluated on its own facts. The choice of a lawyer is an important decision and should not be based solely on advertisements.