Restrictive covenants prohibiting employees from working for a former employer’s competitor for a period of time have long been effectively and lawfully utilized by employers in most states to protect their businesses, but similar agreements among competing employers could land executives in prison.
The United States Federal Trade Commission and Department of Justice’s Antitrust Division recently issued joint guidance (available here) on the application of the antitrust laws in the employment context. Although antitrust law is traditionally thought of as promoting fair and open markets for the benefit of consumers, the FTC and DOJ have made it clear that the antitrust laws apply equally in the “employment marketplace” where companies compete to hire or retain employees.
The guidance notes that the FTC and DOJ plan to specifically target no-poaching and wage-fixing agreements as “per-se illegal.” Thus, agreements between competitors to not hire away each other’s employees (no-poaching) or to limit the compensation of a certain workgroup to avoid escalating wages (wage-fixing) are illegal, and the DOJ intends to criminally investigate and prosecute violators. The guidance notes that the illegality of a no-poaching or wage-fixing agreement does not depend on whether the agreement is formal or informal, written or unwritten or even spoken or unspoken.
The guidance further states that simply sharing sensitive information with competitors about terms and conditions of employment can violate antitrust law even in the absence of an agreement to refrain from poaching or fixing wages. The government’s view is that the mere exchange of information could have the effect of causing competitors to match each other’s compensation systems and artificially depress wages.
Given the potential criminal and civil liability exposure that both employers as well as individuals involved in anti-competitive conduct face, businesses and their executives and human resources professionals are well-advised to take great care to avoid antitrust exposure. Among other things, employers should refrain from no-poaching and wage-fixing agreements and should be mindful about sharing sensitive compensation information with competitors.
Any employer that has questions about the FTC and DOJ guidance or the application of antitrust law in the employment context in general should consult counsel.