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Legal Update

DOJ and FTC Guidance to HR Professionals Warns of Focus on Criminal Prosecution for Employment Agreements

1 December 2016
Mayer Brown Legal Update

People who make corporate employment decisions are now under the microscope of the US Department of Justice Antitrust Division (DOJ) and the Federal Trade Commission (FTC), according to the newly issued “Antitrust Guidance for Human Resource Professionals” (“Guidance”) Published on October 20, 2016, the Guidance makes clear that the DOJ will now pursue criminal charges where it can for antitrust violations in the employment marketplace. The Guidance is part of a larger attempt by the Obama administration to crackdown on allegedly abusive employment practices, and it remains to be seen how aggressive the incoming Trump administration will be in taking up this agenda.

Drawing on the agencies’ enforcement history in this area, which principally grew out of cases involving Silicon Valley companies, the Guidance focuses on no-poaching and wage-fixing agreements and states that such agreements may be actionable civilly by either agency or by third parties (which could result in treble damages). But the main point of the Guidance is to convey the threat by the agencies of criminal prosecution for particularly egregious, cartel-like agreements not to compete for labor. And because of this threat, the Guidance also is a clear invitation for whistleblowers to report any potential violations to the agencies.

The Guidance reminds companies of the pitfalls of sharing competitively sensitive information—such as wages and the terms and conditions of employment—with competitors in the same labor market. While information sharing may be appropriate in certain circumstances, such as in joint ventures or in merger or transactional due diligence, the Guidance reiterates the principle stated in the agencies’ “Statements of Antitrust Policy in Health Care” that information sharing regarding employment issues should take place only in limited circumstances with appropriate precautions implemented.

Finally, the Guidance should not be read in a vacuum. On Tuesday, October 25, 2016, the Obama administration announced that, in addition to the newly issued DOJ and FTC Guidance, the White House is calling on all states to ban non-compete agreements for certain types of workers and enact employment contract protections for all workers. While three states—California, North Dakota, and Oklahoma—currently ban non-compete agreements, and 26 other states have laws that govern non-compete agreements, enforcement of these statutes has been inconsistent.

It remains to be seen whether President-elect Trump will continue the Obama administration’s efforts in this area. We can expect the new administration to review aspects of antitrust enforcement during the Obama administration and to be more lenient in certain areas, such as merger challenges. However, historically, Republicans have been at least as aggressive as Democrats regarding cartel enforcement. And agreements that prevent the free market from operating have been a high priority for Republicans. So, the next administration may remain focused on challenging agreements that may adversely impact labor issues. But the Trump administration also may want to reduce regulations on businesses, which could be inconsistent with supporting restrictions on employment noncompete agreements. Regardless of the level of attention by the Trump administration on these issues, companies are still on notice that the agencies may challenge, whether civilly or criminally, any alleged abuses in this area. As such, companies should take precautions to ensure that they or their employees do not run afoul of this new Guidance.

Takeaways for Companies and Human Resource Professionals

This new Guidance from the DOJ and FTC provides important lessons for companies and, in particular, human resource professionals:

  • The DOJ and FTC clearly are looking for new cases in this area, including cases that could be the subject of criminal prosecution. Companies should take precautions, such as via compliance programs and additional antitrust training, to ensure their employees are not engaging in conduct that may be contrary to this Guidance.
  • In particular, the DOJ and FTC are now focused on human resource professionals as a source of potential antitrust misconduct. Companies should consider implementing antitrust compliance programs for human resource professionals that address the issues contained in the Guidance. Such programs could be as simple as explaining to human resource professionals not to discuss wages or benefits with anyone outside of the company or potential new hires.

  • Actionable wage-fixing agreements can involve more than just salaries. Companies should not engage in discussions with competitors in the labor market regarding other types of employment benefits, even benefits that presumably are innocuous, such as gym memberships or vacation days.

  • Companies should be cautious about information exchanges regarding employment issues, particularly in the context of merger or transactional due diligence, where this information previously may have been exchanged more freely. Employment contracts or employment data should be exchanged only when necessary and only with persons who are not in a position to make employment-related decisions at the company conducting the due diligence.

Authors

  • Mark W. Ryan
    T +1 202 263 3338
  • Lee H. Rubin
    T +1 650 331 2037
  • Edward D. Johnson
    T +1 650 331 2057
  • Kelly B. Kramer
    T +1 202 263 3007
  • Donald M. Falk
    T +1 650 331 2030
  • Meytal McCoy
    T +1 202 263 3898
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