DOJ “No-Poach” Antitrust Prosecutions May Be Imminent
V&E Antitrust Investigations Update E-communication, February 16, 2018
Antitrust Division has been threatening at least since 2010 that it may treat
“no-poach” or “mutual no-hire” agreements as criminal violations of the
antitrust laws. Recent DOJ statements now make it appear that prosecutions
could be announced soon. Employers should review their antitrust and employment
Guidance: “Naked” No-Poach Agreements Are Per Se Illegal
In 2010, in the first of what became known as the “high
tech hiring cases,” DOJ’s Antitrust Division sued several high-tech and media
companies, alleging that the companies had agreed not to solicit each other’s
employees, depressing wages and competition for talent. DOJ settled its civil
complaint (see DOJ’s press release) and
private civil litigation ensued. In 2016, DOJ and the Federal Trade Commission
issued an eleven-page joint document, Antitrust Guidance for Human Resources Professionals, making clear that such “no-poach” or “mutual no-hire”
agreements (and similar agreements) would remain a focus of enforcement, and
stating that certain agreements would be considered “per se” illegal, meaning
automatically prohibited, without any opportunity for the defendants to argue
wage-fixing or no-poaching agreements among employers, whether entered into
directly or through a third-party intermediary, are per se illegal under the
(DOJ/FTC Guidance at 3.) DOJ even threatened to prosecute
no-poach agreements under the criminal laws, which provide substantial fines
and the possibility of felony convictions and jail time for guilty executives.
In the almost eight years since its first no-poach
settlements, DOJ has brought no related criminal indictments, though it has
been active in criminal prosecutions against other types of antitrust conduct.
Now, however, DOJ’s new Antitrust leadership says cases are coming soon.
Predicts Cases “In The Coming Couple of Months”
It appears that criminal investigations of no-poach
conduct are under way, and indictments may be announced in 2018. In September
of last year, the then-Acting Assistant Attorney General in charge of the
Antitrust Division, Andrew Finch, publicly emphasized DOJ’s intention to prosecute
naked no-poach agreements. In January of this year, newly confirmed Antitrust
head Assistant Attorney General Makan Delrahim went further, stating at a
Washington, DC-area conference that DOJ has opened several “active”
investigations and that he has been “shocked” at how much such conduct exists.
Delrahim expressed frustration that the no-poach conduct “has not been stopped, and continued [even after] the time
when DOJ’s policy was made.” He said that DOJ fully intends to bring criminal
prosecutions, and “in the coming couple of months, you will see some
announcements” of new cases from DOJ.
On February 16, 2018, at the American Bar Association’s
International Cartel Workshop in Paris, Delrahim reiterated that cases are
near. He stated that if conduct “ceased promptly” as of the 2016 Guidance, DOJ
will treat it as a civil violation, but if the conduct continued or started
after the 2016 Guidance, DOJ will prosecute. He again expressed “surprise” at
how much conduct DOJ has uncovered, and stated that he has no sympathy for
attempts to justify it because, in his view, the illegality of such agreements
is “nothing new.”
a Naked Agreement?
In calling out “naked” no-poach agreements, DOJ has
pointed to agreements that stand by themselves: agreements that are not part of
a larger collaboration that might provide justifications for no-hire clauses,
but instead are stand-alone agreements about hiring or non-hiring. Illegal
agreements need not be formal contracts, or even in writing; to the contrary,
DOJ has a long history of prosecuting handshake deals as criminal violations,
if those deals involve typical cartel conduct such as price fixing, bid
rigging, and customer allocation. There is every reason to believe that a
handshake or exclusively oral no-poach agreement would receive DOJ’s
condemnation to the same extent as a written one.
If a no-poach condition merely appears as a clause within
a larger agreement that has broader business purposes, the condition is not
likely to be per se illegal and may not be illegal at all. For example, if two
companies form a joint venture to bring an important new product to market,
and, as one of many terms, they agree not to poach each other’s key employees
involved in that joint venture, a no-poach term may raise few concerns. But
given DOJ’s (and also FTC’s) interest, it would be wise to consult antitrust
counsel before proposing any no-poach condition.
Industries Are Most At Risk?
DOJ has not disclosed what industries it is currently
investigating for no-poach violations but there have been indications that
DOJ’s focus is on high tech, financial, and pharmaceutical companies. This
would be logical: no-poach agreements may have their greatest value in
industries with highly talented, uniquely skilled, identifiable, and above all
mobile employees. Any industry that depends on so-called “star” employees could
be at increased risk. And obviously, industries that feature actual stars —
celebrities, whether in entertainment and media or otherwise — should take heed
of the competition agencies’ guidance.
Note: DOJ has indicated that Human Resources executives
and talent recruiters have been directly involved in previous instances of
wrongdoing. If these professionals are tempted to think they can safely decline
or ignore antitrust compliance training, they should think again.
Is The Risk, And How To Mitigate It?
Penalties for antitrust violations can be substantial.
The Sherman Antitrust Act imposes criminal penalties of up to $100 million for
a corporation and $1 million for an individual, along with up to 10 years in
prison (with real jail time increasingly common). Also, the maximum fine may be
increased to twice the amount the conspirators gained from the illegal acts or
twice the money lost by the victims of the crime, if either of those amounts is
over $100 million. In follow-on civil cases, private plaintiffs can seek treble
damages, and such cases often involve class actions. Note that unlike most
antitrust cases, which generally require proof of monopoly power and
significant market shares, cases involving per se illegality can be brought
against companies with comparatively small market positions.
To mitigate the risk, companies may consider all of the
- Avoid sharing sensitive employment information
with competitors, or discussing with competitors any topic involving poaching,
employee compensation, and employee attrition rates.
- Ensure that senior executives, talent recruiters,
and Human Resources professionals receive antitrust compliance training, along
with more traditional recipients of antitrust training (such as sales teams).
- Run all
no-poach and non-competition terms past a qualified antitrust attorney before
they are proposed, even orally, to another party. While no-poach terms contained
in broader business agreements may be justified, this is not a conclusion that
business teams should make on their own.
- If potential
wrongdoing is detected, promptly consult with antitrust counsel about next
steps. Even if a naked no-poach agreement (or other clear antitrust violation)
already exists, the company may have options. For example, DOJ has a Leniency Program
for criminal antitrust violations, under which companies that promptly approach
DOJ about discovered conduct, and promptly cease that conduct, may be eligible
for amnesty or reduced criminal penalties. Time is of the essence in these
situations because DOJ encourages a “race to the door” in which the first-in
company receives far greater benefits than the company in second place.
- If a company
has any suspicion of such conduct, it should investigate immediately — DOJ does
not consider management ignorance to be a defense.
Visit our website to learn more about V&E’s Antitrust Investigations and Antitrust practices. For more information, please contact Vinson & Elkins lawyers Hill Wellford, Lindsey Vaala, or any of the firm’s Antitrust practice contacts.