Antitrust and Unfair Competition Law
Labor Market Collusion Is a Top Government Priority — Compliance Training Should Be as Well
By Bob Connolly
It is abundantly clear that competition enforcers in the United States (DOJ/FTC/States) and around the world are making investigating labor market collusion (wage price-fixing and “no-poach” agreements) a top priority. On October 1, 2021, Acting Assistant Attorney General Richard A. Powers of the Antitrust Division spoke about the history of and commitment to enforcing the antitrust laws, including criminal enforcement, in labor markets: “If it was important for enforcers to protect competition in labor markets decades ago — and I believe it was — it is essential now.” Powers added: “Importantly, criminal prosecution of labor market conspiracies is the tip of the spear; the Division’s focus on labor markets extends beyond its cartel program. The Division is also committed to using its civil authority to detect, investigate, and challenge anticompetitive non-compete agreements, mergers that create or enhance monopsony power in labor markets, the unilateral exercise of monopsony power, and information sharing by employers.” I suggest reading the speech in its entirety (here). More recently, EU Competition Commissioner Margrethe Vestager emphasized the EU focus on competition in labor markets due to "no-poach" deals. Vestager said individuals are negatively affected "when companies collude to fix the wages they pay or when they use so-called no-poach agreements as an indirect way to keep wages down, restricting talent from moving where it serves the economy best." See EU's Vestager warns of more anti-cartel raids, criticises 'no-poach' deals, Reuters, By Foo Yun Chee, October 22, 2021.
II. EDUCATION ON LABOR MARKET COLLUSION SHOULD BE A TOP PRIORITY FOR COMPLIANCE TRAINING
The Antitrust Division has recently brought several labor market collusion criminal cases. The parties are “duking it out” as to whether labor market collusion cases fall within the per se rule or should be judged by the rule of reason. There are skilled lawyers on both sides of the issue and it will be fascinating to see how the cases turn out. My own view is that, while I think applying the per se rule in criminal antitrust cases is unconstitutional, see Cartel Capers, Supreme Court Review Sought for Per Se Rule in Criminal Cases, as long as there is a per se rule, (and there is), the same rules should apply to labor/wages. With that in mind, below is some suggested compliance guidance regarding labor market collusion for human resource employees and others involved in the hiring process. Disclaimer: This is by no means a complete compliance guidance outline — but it would be a start. There are two key documents that would get the attention of those involved in the hiring process. The first is this joint October 16, 2016, FTC/DOJ press release: FTC and DOJ Release Guidance for Human Resource Professionals on How Antitrust Law Applies to Employee Hiring and Compensation which includes a link (here) to: “The agencies’ joint guidance include[ing] a Q&A section that explains how antitrust law applies to various scenarios that HR professionals might encounter in their daily work lives.” Another document to highlight would be the speech on October 1, 2021, by Antitrust Division Acting Assistant Attorney General Richard Powers (noted above), which emphasizes that the DOJ has made good on its promise to prioritize labor market collusion cases — including bringing criminal charges against individuals allegedly involved in the collusion. Convicted individuals face a maximum jail sentence of 10 years. Labor is an input for making any product. Businesses can’t collude with competitors about the price they will pay for inputs to make a product or to allocate suppliers. Labor is no exception. Think about a company that produces widgets. This widget requires copper wire, glass products, machinery and labor. It seems obvious (hopefully) that an executive in one company cannot call a competitor and say, “Let’s agree to not pay any more than X for the copper?” Or “If you don’t solicit quotes from my supplier, I won’t from yours.” Labor is also an input. Why would it be OK to call a competitor and say “Let’s agree not to pay any more than X per hour” for the input of labor? As with any input, not every agreement between competitors is per se illegal or a “naked” price-fixing violation. When companies integrate resources, as in a buying group or joint venture, the agreement will be judged under the rule of reason: Do the procompetitive benefits outweigh the anticompetitive harm? The FTC/DOJ guidance explains a basic difference between a “naked” agreement and an agreement “ancillary” to a procompetitive collaboration: “That means that if the agreement is separate from or not reasonably necessary to a larger legitimate collaboration between the employers, the agreement is deemed illegal without any inquiry into its competitive effects. Legitimate joint ventures (including, for example, appropriate shared use of facilities) are not considered per se illegal under the antitrust laws.” Antitrust Guidance for Human Resource Professionals, Department of Justice, Antitrust Division/Federal Trade Commission, October 2016, at 3. Thinking of labor as any other input, I’d add this to my presentation:
- An agreement does not have to be in writing. It can be inferred from other circumstances — such as evidence of discussions and parallel behavior.
- The DOJ intends to proceed criminally against naked wage-fixing or no-poaching agreements. The penalties can be severe, including jail time for individuals.
- Like any other cartel, agreements to reduce competition can be prosecuted even if they don’t eliminate all competition or are unsuccessful.
III. AN ALTERNATIVE TO PROTECT AN INVESTMENT IN EMPLOYEES
There are times when a company has a legitimate interest in preventing a competitor from “poaching” one of its employees. For example, two companies may put their best engineers together in a joint venture for a military project. A company may not want its competitors to get a birds-eye view of the training and knowledge of its key employees and then snatch them away. A “no-poach” agreement between the two companies would be ancillary to a procompetitive benefit but still be subject to antitrust scrutiny under the rule of reason. The length and scope of the “no-poach” agreement would be part of the analysis. An alternative to an agreement between the companies might be to ask the employees to be assigned to this joint venture to sign an agreement that they will return to their company after the joint venture expires. The shorter the period of time, the more likely the agreement will be viewed as ancillary to the procompetitive benefits of the joint venture. The Antitrust Division used to use agreements like this if an attorney was detailed for a period of time to a U.S. Attorney’s office. (I don’t know whether this program still exists.) The attorney would get valuable training in the U.S. Attorney’s Office, the U.S. Attorney would get an extra resource for a period of time (procompetitive), but the employee would have to agree not to bolt the Division for a position in the U.S. Attorney’s office for a set period of time. The procompetitive benefits of this arrangement clearly outweigh the limited restraint on the employees’ movement, as evidenced by the employee’s consent. There’s much more to be said about labor market collusion, and no doubt better and more detailed ways to say it. The point is that if labor market collusion is a priority for enforcement agencies, compliance training should be a priority for companies. And, if you take the approach that labor is an input, subject to the same antitrust rules as any other input, you have provided more than just training on labor market collusion.
Robert E. Connolly of Robert Connolly Law has worked in the field of antitrust/competition law since 1980. He spent 33 years in the U.S. Department of Justice Antitrust Division.