January 25, 2018

Corporate Agreements Not to Recruit Employees From Competitors Could Lead to Criminal Actions, Per DOJ Antitrust Chief

In a speech on January 19, the Department of Justice Antitrust Division’s chief antitrust enforcer, Makan Delrahim, said the Division is investigating and plans to pursue criminal actions against employers who have agreed not to hire each other’s employees. While Delrahim did not disclose the names of the companies being investigated, companies could face significant criminal fines and individuals could receive prison sentences for their roles in a conspiracy to depress wages. This approach represents a significant departure from the Division’s previous enforcement strategy, as employers and individuals have never been prosecuted criminally for wage fixing or employee market allocation. Delrahim’s remarks may spur companies to revisit their recruiting policies and practices to ensure compliance with the federal antitrust laws, and to review any potential agreements that may be in place during the merger or acquisition due diligence process. 

Delrahim’s speech last week at a conference hosted by the Antitrust Research Foundation confirms that the Division remains committed to investigating employer conduct. In October 2016, the Division and its sister antitrust enforcer, the Federal Trade Commission, issued a joint policy statement directed toward human resource professionals in which the agencies announced that criminal sanctions would be appropriate for “naked wage-fixing” and “no-poaching agreements.” Specifically, the guidelines state that “[t]hese types of 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.”

Previous Actions Against High Tech Employers

The Antitrust Division’s policy of going after employers that agree not to hire away each other’s employees is not new. For example, in 2010, the Division filed a complaint against Silicon Valley employers alleging they had entered into agreements beginning in 2005 not to “cold call” their competitors’ employees regarding new work opportunities. These policies were widely known and accepted in the industry — so much so that companies’ hiring policies explicitly listed names of competitors from whom the companies had agreed not to solicit new employees. Significantly, when determining that the defendants were competitors, the Division looked to the skill sets of their interchangeable employees and not to the ultimate products or services the competitors produced. The defendants ultimately settled with the Division, and agreed not to enter into any agreements to solicit one another’s employees for a five-year period. Notably, this litigation was brought as a civil case — Delrahim has now indicated that under his watch, the Division will bring similar cases as criminal actions.

After the Division’s Silicon Valley employee investigation became public, a civil antitrust action was filed in 2011. The class plaintiffs received settlements totaling $435 million. The litigation resulted in the production of emails from some of the technology industry’s biggest players – including Apple co-founder Steve Jobs and Google Chief Executive Officer Eric Schmidt – detailing their agreements not to poach each other’s prized employees.

Trump Administration’s Antitrust Policies Favor Enforcement Over Regulation

Delrahim previously confirmed that the Division’s commitment to prosecuting anticompetitive conduct is consistent with the Trump administration’s policy of deregulation. In a speech he delivered on November 16, 2017, Delrahim described how “[A]ntitrust is law enforcement, it’s not regulation . . . . In my view, antitrust is inherently deregulatory . . . [C]ompetition law enforcement contributes to a well-functioning free market economy, and our prosecution efforts will support a more limited overall federal government role in the markets.” In that vein, Delrahim expects to see fewer long-term consent decrees with behavioral remedies that are difficult to monitor and “a return to the preferred focus on structural relief.” Consistent with that message, in 2017, the Division reopened its investigation of the $4.3 billion acquisition of Clarcor by Parker-Hannifin — a merger that previously had received approval and was consummated after completion of the Division’s premerger notification processes. The Division subsequently challenged the acquisition, and the parties’ final judgment requires Parker-Hannifan to divest part of the business it acquired from Clarcor. FaegreBD attorneys have seen firsthand that the Division and the FTC are taking a more serious look at proposed mergers and acquisitions that historically would not have been closely scrutinized.

In another announcement consistent with the deregulation theme, the principal deputy assistant attorney general for the Division, Andrew Finch, told an audience on January 23, 2018, that the Division is looking at overturning Supreme Court precedent preventing indirect purchaser plaintiffs from recovering damages under federal antitrust law. Such a change in the law would have far-reaching implications for civil antitrust litigation, where antitrust defendants have long argued that end customers who purchase products through an intermediate source may not recover antirust damages. With limited federal law exceptions, they have been right. However, antitrust plaintiffs have circumvented the federal indirect purchaser rule by bringing successful indirect purchaser claims under state laws permitting the same. But a change in federal law would make life easier for antitrust plaintiffs and give indirect purchasers in over 20 states the right to bring indirect purchaser claims they currently have limited, if any, viable federal legal grounds to bring.

A Sticky Antitrust Situation

Even with guidance from the Division and the FTC, the antitrust laws remain nuanced and complex, and their application to specific circumstances is highly fact sensitive. Companies or individuals who have questions or concerns about any competitor communications regarding employee hiring or compensation should consult legal counsel. 

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