DOJ Settles Enforcement Action Targeting “No Poach” Agreements
In our February post discussing this issue, we predicted that federal criminal antitrust prosecutions of no-poaching and no-hire agreements were on the near horizon due to the U.S. Department of Justice, Antitrust Division’s (“DOJ”) October 2016 guidance alerting companies and HR professionals to beware of the antitrust risk involved in hiring and compensation decisions. Making good on these warnings, the DOJ recently announced a settlement with two of the world’s largest rail equipment suppliers (Germany-based Knorr-Bremse AG (“Knorr”) and Delaware corporation Westinghouse Air Brake Technologies Corporation (“Wabtec”)) to resolve allegations that the companies maintained long-standing agreements not to compete for employees.
Because workers with rail experience are in high demand and low supply, these two companies had entered into no-poach agreements with each other. The agreements were implemented by internal and external recruiters, who were instructed not to solicit or consider applicants from the other company. The DOJ sought to prosecute the companies under the Sherman Act, which resulted in settlement. The settlement imposes onerous compliance provisions, including requirements that the companies appoint antitrust compliance officers who will annually brief top management, inform all external recruiting and staffing agencies about the requirements of the settlement, certify their compliance with the DOJ annually, and allow periodic on-site compliance inspections. Additionally, separate class action lawsuits have been filed seeking treble damages to compensate purportedly under-compensated employees damaged by the conspiracy.
Considering the gravity of these consequences, companies (particularly those operating in antitrust-vulnerable industries in which highly skilled and uniquely trained employees are in high demand and low supply, such as pharmaceuticals, financial services, high tech, and specialized energy services and supply) should consider taking one or more of the following steps to limit their exposure:
- Consider what inter-company non-competition and non-solicitation arrangements may exist, and if the company may have exposure for anticompetitive conduct related to its recruiting and hiring practices. Not all no-hire or non-compete arrangements are unlawful. However, the structure and legality of all such agreements must be considered carefully. Accordingly, run all no-poach, non-competition and non-solicitation terms past qualified antitrust and employment attorneys before they are proposed, even orally, to another party.
- Conduct antitrust training (or refresher training) for senior management involved in or responsible for recruiting, hiring and compensation activities and personnel in human resources and recruiting departments.
- Provide senior management, human resources personnel and recruiting personnel with a copy of the October 2016 Antitrust Guidance for Human Resource Professionals.
- Consult antitrust counsel to evaluate potential exposure and discuss next steps if potential wrongdoing is detected. Time is of the essence in such situations as the first company to report potential anticompetitive conduct receives the best benefits.
One last note of importance for companies moving forward: The DOJ action filed against Knorr and Wabtec (and the resulting settlement) was for civil antitrust violations, not criminal, because the conduct was discovered and stopped before the October 2016 Antitrust Guidance for Human Resource Professionals was issued. But the DOJ has stated multiple times that, moving forward, conduct discovered after October 2016 will be subject to criminal enforcement.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.