Over the past decade, antitrust law has become increasingly concerned with competition among employers for labor and talent. This focus is only expected to grow under President Biden.
The primary concern in labor markets has been with “no-poach” agreements, in which employers agree not to recruit or solicit one another’s employees, and “wage-fixing” agreements, in which employers agree to limit or set wages. Enforcers, and politicians on both sides of the aisle, have expressed concern that such restrictions limit workers’ opportunities to move to better or higher-paying positions.
The Department of Justice Antitrust Division (DOJ) filed its first major no-poach case in 2010, against an array of Silicon Valley companies that had agreed not to “cold call” one another’s employees. To resolve the matter, the companies agreed to end this arrangement and abstain from an array of similar practices restricting competition for talent. Many of the same companies then faced a private class action on behalf of 64,000 high-tech employees, most of whom settled in October 2013 (within a year of class certification).
In October 2016, DOJ and the Federal Trade Commission issued the first-ever Antitrust Guidance for Human Resources Professionals, alerting HR professionals to the potential for antitrust violations in the employment context. The Guidance explained that “naked” no-poach and wage-fixing agreements are per se illegal, whether entered into directly or through an intermediary such as a trade association. This means that if such an agreement is “separate from or not reasonably necessary to a larger legitimate collaboration between employers,” it will be “deemed illegal without any inquiry into its competitive effects.”
In addition to urging the adoption of safeguards to prevent no-poach and wage-fixing agreements, as well as the sharing of information about terms of employment, the Guidance put companies on notice that DOJ would proceed criminally against such agreements going forward.
DOJ has made good on its promise in recent months, bringing its first-ever indictments for wage-fixing and no-poach agreements in December 2020 and January 2021, respectively. Another set of criminal indictments followed in March 2021, and the agency shows no sign of letting up—only of bringing more industries, employers, and practices into its scope. In the latest case, DOJ indicted a health care staffing company then known as Advantage On Call LLC and a former manager who allegedly agreed with a competitor not to recruit or hire school nurses from one another’s ranks for Las Vegas public schools. The first two criminal cases in labor markets also involved relatively small companies in the health care industry: a physical therapist staffing company and senior employees at outpatient medical care centers.
The agencies’ guidance that no-poach agreements were not only unlawful but criminal helped to launch a flurry of private litigation and state-level investigations into potential violations. In July 2018, Washington State Attorney General Bob Ferguson announced that seven fast food chains, including McDonald’s and Arby’s, had agreed, under threat of enforcement action, to end a nationwide practice of prohibiting franchisees from hiring or recruiting employees from other franchisees. Standard terms in these brands’ franchise agreements prevented, for example, the owner of one Arby’s franchise from recruiting or hiring employees of another Arby’s franchise. By October 2018, Ferguson’s office had reached similar settlements with 100 corporate chains, extending beyond restaurants to businesses offering entertainment, massage, painting, and other services via the franchise model.
At the same time that DOJ has aggressively pursued no-poach cases, it has also argued for a more lenient and flexible approach in certain contexts. Through statements of interest filed in private litigations, the agency has advocated against application of the per se rule to restrictions on labor competition within franchises.
In March 2019, DOJ filed a statement of interest favoring defendant fast food chains in several follow-on class actions. This filing outlines some of the most colorable defenses for no-poach cases in the franchise context. Citing the law’s more lenient approach to restrictions on competition within a single brand (i.e., “intra-brand” competition) and to vertical restraints imposed by franchisors, DOJ argued that the employees’ claims should be assessed under the rule of reason. It further argued against treating the no-hire franchise provisions as a “hub-and-spoke” conspiracy, which would also be per se unlawful. Such cases, it observed, require agreements not only between the hub (franchisor) and spokes (franchisees), but also among the spokes themselves, forming the “rim” of the figurative wheel. Throughout its statement, DOJ emphasized the ancillary restraints doctrine, under which an agreement is exempt from the per se rule if it is “ancillary to a separate, legitimate venture between the competitors” and “reasonably necessary” to “make the main transaction more effective in accomplishing its purpose.”
No court has yet adopted DOJ’s position with respect to franchise labor restrictions, and it is unlikely that the Biden administration will continue the previous administration’s advocacy against plaintiffs on this or other fronts. Nevertheless, DOJ’s statements of interest and amicus briefs under the Trump administration may be cited for years to come, and provide a good starting place for defendants responding to no-poach suits in the franchise context.
As antitrust enforcers and the plaintiffs’ bar continue the dogged pursuit of agreements in restraint of competition for labor and talent, more and more companies may be brought into the fold. No industry is immune from scrutiny in this area, and the cases to date make clear that there is no market power or size threshold for investigations and prosecutions.
Companies can limit their future exposure by updating their compliance programs to be sure that executives and HR professionals understand that the antitrust laws apply not just to sales and marketing activities, but also to employment activities. If there is reason to believe that the company or any of its subsidiaries may have entered into agreements limiting labor competition, these concerns should be investigated. For any violations uncovered, there may be steps that can be taken to mitigate criminal liability, such as use of DOJ’s leniency program for self-reporting violators, and to improve positioning for any incoming lawsuits.
