The Department of Justice Antitrust Division Targets Collusion in Labor Markets

The U.S. Department of Justice Antitrust Division (“DOJ”) is making good on its promise to criminally prosecute illegal labor-related agreements between competitors—such as agreements not to solicit, recruit, hire without prior approval, or otherwise compete for employees (“no-poach agreements”). On January 5, 2021, a federal grand jury in the Northern District of Texas indicted the UnitedHealth Group subsidiary Surgical Care Affiliates LLC (“SCA”) for allegedly participating in a conspiracy with other health care companies to suppress competition for employment services of senior-level employees.¹ According to the two-count indictment, SCA agreed with a competitor in Texas and another in Colorado not to solicit each other’s senior-level employees.²

Throughout the past few years, DOJ officials have repeatedly warned that no-poach agreements would be prosecuted criminally but until recently have only pursued civil actions. Between 2010 and 2019, the DOJ brought civil actions against 10 companies in the technology sector and the railroad industry for entering into unlawful no-poach agreements. The DOJ also has filed statements of interest in numerous recent private no-poach lawsuits. Last week’s indictment, along with the criminal indictment of a former owner of a therapist staffing company for wage-fixing in December 2020, marks a notable change in the DOJ’s antitrust enforcement of conduct impacting U.S. labor markets.

DOJ Has Issued a Series of Warnings Regarding No-Poach and Wage-Fixing Agreements

The DOJ first announced its intention to criminally prosecute “naked wage-fixing or no-poaching agreements” in the Antitrust Guidance For Human Resource Professionals (the “HR Guidance”), which it jointly issued with the Federal Trade Commission (“FTC”) in October 2016.³ In the HR Guidance, the DOJ noted 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.”⁴

Since 2016, the DOJ continually has reiterated its intent to criminally prosecute illegal collusion related to wages and employment—despite the noticeable lack of criminal enforcement actions. In January 2018, Makan Delrahim, United States Assistant Attorney General for the Antitrust Division, said he was “shocked” by the number of no-poach agreements uncovered by the DOJ and hinted that criminal no-poach cases would be filed shortly.⁵ Later that year, Deputy Assistant Attorney General for Civil Antitrust Barry Nigro noted that the prevalence of abusive employment practices was “eye opening.”⁶ Nigro indicated that the DOJ was investigating “potential criminal antitrust violations in [the health care] industry, including … no-poach agreements restricting competition for employees.”⁷ In September 2019, Delrahim confirmed that “criminal prosecution of naked no-poach and wage-fixing agreements remain[ed] a high priority for the Antitrust Division”⁸ And, in an interview with the Wall Street Journal in January 2020, shortly before the start of the COVID-19 pandemic, Delrahim said that a criminal no-poach case would be filed in the first half of the year.⁹

Most recently, in April 2020, the DOJ and FTC (collectively, the “Agencies”) issued a Joint Antitrust Statement Regarding COVID-19 and Competition in Labor Markets (the “COVID-19 Joint Statement”).¹⁰ Consistent with the Agencies’ prior statements, the COVID-19 Joint Statement warned that the Agencies were “on alert” for “collusion or other anticompetitive conduct,” including “agreements to lower wages or to reduce salaries or hours worked.”¹¹ Once again, the DOJ threatened criminal prosecution for “companies and individuals who enter into naked wage-fixing and no-poach agreements.”¹²

The charges filed against SCA last week demonstrate that the DOJ’s warnings are more than empty threats. Companies need to be mindful of the potential antitrust risk involved in communications with competitors related to wages and employment.

Not All Employment Agreements Are Illegal

In the right context—and with proper safeguards—certain employment agreements and exchanges of information relating to terms of employment are legal. The DOJ and FTC joint Antitrust Guidelines for Collaborations Among Competitors (the “Competitor Collaborations Guidelines”) recognize that “[i]n order to compete in modern markets, competitors sometimes need to collaborate.”¹³ Antitrust law recognizes that certain agreements that otherwise might be considered illegal per se (such as the no-poach agreements referenced above) warrant more elaborate analysis when they are reasonably related to, and reasonably necessary for, the achievement of procompetitive benefits.¹⁴ For example, it may be reasonable for participants in a joint venture to enter into a limited agreement not to compete for certain key employees who are critical to the functioning of the venture.¹⁵ Additionally, during merger or acquisition due diligence, a buyer may need to obtain certain employee-related competitively sensitive information in order to properly value the proposed transaction. The Agencies recognize that this type of information sharing may be lawful if appropriate precautions are taken.

Takeaways for Companies and Human Resource Professionals

Given the DOJ’s continued focus on no-poach agreements, companies—in particular HR professionals—should evaluate whether their current agreements and policies fall within the proper bounds of the antitrust laws.

• Employees responsible for the recruitment or hiring of company personnel should not discuss their company’s internal employment practices with competitors. This includes information such as employee benefits, wages, and other terms of employment. According to the Agencies, perks such as gym memberships, parking and transit subsidies, meals, and meal subsidies are all elements of employee compensation that generally should not be discussed with competitors.
• Antitrust compliance training for all HR professionals and employees involved in hiring and compensation can help ensure that the relevant employees understand the Agencies’ HR Guidance.
• Any sharing of competitively sensitive information—even pursuant to a potential deal or joint venture—must be done for a valid reason and only in strict conformance with appropriate antitrust safeguards (such as aggregating information, limiting information to historical data, and restricting which employees have access to the information).
• Companies should take precautions to ensure that any agreement with a competitor relating to employment considerations is proper under the antitrust laws.

Conclusion

After years of repeated warnings, the DOJ now has filed criminal charges for illegal conduct impacting U.S. labor markets. Even though the days remaining in the current administration are numbered, the labor markets will undoubtedly remain a DOJ focus under the Biden administration.¹⁶ Companies should carefully continue to strengthen their compliance programs and trainings in this area and consider antitrust risk when it comes to labor-related agreements with competitors.