The Antitrust Division of the U.S. Department of Justice and the Federal Trade Commission recently issued a joint statement cautioning employers against taking advantage of the COVID-19 crisis by colluding with competitors on hiring, wages, or other conditions of employment. The statement underscores that even in the midst of this pandemic, federal and state antitrust agencies will continue to aggressively pursue and prosecute collusive agreements affecting labor markets, particularly in the healthcare and life sciences industries.
All companies should continue efforts to ensure compliance with federal and state antitrust laws. In the wake of the COVID-19 crisis, companies in the healthcare and life sciences industries in particular must re-double efforts to avoid collusive behavior affecting labor markets. Employees in these industries are on the front lines of addressing the crisis and may be considered essential workers. Employers may be tempted to retain valuable employees or limit their bargaining power by entering into no-poach or wage-fixing agreements with competitors. These agreements continue to present significant legal risk.
The joint statement states that, over the next several months, DOJ and FTC will be keeping a close eye on companies that “prey on working Americans by subverting competition in labor markets.” The statement highlighted that the Agencies seek to protect those workers on the front lines of the coronavirus pandemic, “including doctors, nurses, first responders, and those who work in grocery stores, pharmacies, and warehouses, among other essential service providers – by using various antitrust laws against those who seek to exploit the current circumstances to engage in anticompetitive conduct in the labor market.”
Last week’s statement indicates that federal and state antitrust agencies will continue to closely scrutinize no-poach and wage-fixing agreements. In 2016, DOJ announced an intent to pursue criminal actions against “naked” no-poach agreements between employers and provided guidelines, Antitrust Guidance for Human Resource Professionals, outlining potential antitrust violations. Generally, “naked” no-poach agreements are blanket agreements between competitors with indefinite bans on hiring or soliciting employees. According to the guidance, these arrangements also commonly include wage-fixing agreements that “rob employees of labor market competition [and] deprive them of job opportunities, information and the ability to use competing offers to negotiate better terms of employment.”
In 2018, three major railroad equipment suppliers settled with the DOJ after having agreed not to hire each other’s employees dating back as far as 2009.
Additionally, state attorneys general and class action plaintiff lawyers are also taking notice. Several major restaurant chains recently agreed to end their no-poach policies in 2018 as part of agreements with the Attorney General of Washington State. Additionally, employees have filed numerous class actions seeking to address alleged labor market collusion. Last week’s statement emphasizes that federal and state antitrust regulators will continue to focus closely on collusion in labor markets, particularly in industries employing essential workers.
Every company – but particularly those in the healthcare and life sciences industries engaged in addressing the COVID-19 crisis – should be mindful of continuing antitrust scrutiny and should take the following three steps.
1. Understand the Rules
Companies should actively train their leadership and human resources personnel on antitrust compliance, including no-poach and wage-fixing agreements, as well as exchanging competitively sensitive information. Specifically, human resources personnel should closely review the agencies’ Antitrust Guidance for Human Resource Professionals. When considering a no-poach or similar agreement, a company must understand that blanket bans on hiring or agreements to set wages among competitors may run afoul of the Sherman Act and may carry prosecutorial risk. However, not all no-poach agreements are illegal or worthy of criminal scrutiny, and agreements that are limited as to duration, scope, and purpose may be permissible. All that said, the law in this area continues to develop.
2. Review Existing Policies
Companies must closely review any employment-related arrangements they may have with other companies in their industry, as well as internal hiring policies and benchmarking surveys. While unilateral, internal policies not to hire from a competitor are not illegal, such policies must be closely scrutinized to ensure that it is not an implicit no-poach agreement. It can be difficult to decipher exactly where a policy crosses the line, how much risk it poses to the company, and what steps to take to properly amend the policy before a potential lawsuit arises. Accordingly, both understanding the law in this area and engaging counsel are advisable in order to navigate practical grey areas.
3. Proactively Address Potential Issues
It is best to avoid no-poach agreements altogether unless the agreement would fall into one of the following permissible categories (per DOJ’s Antitrust Guidance for HR Professionals and Spring 2018 Antitrust Division Update):
- Limited agreements between companies in a joint venture
- Limited agreements entered for the purpose of settling litigation;
- Limited agreements between two companies conducting due diligence for a transaction
- Limited agreements between a buying and selling company not to hire employees of the selling company.
However, if a company already has a no-poach agreement in place that does not fall into one of these categories, they must carefully consider how to address it. Companies may be liable for no-poach agreements entered into in the past; to the extent a company has a current naked no-poach agreement, that company should consider terminating the agreement as soon as possible, or, at minimum, consider redrafting language in the agreement to limit its potentially collusive effect. All companies are best served by planning ahead, proactively building a defense, and developing a detailed plan of action to preemptively alleviate any issues that may arise.