U.S. Department of Justicebuilding in Washington, D.C.

On April 3, 2018, the Department of Justice's Antitrust Divisionannounced its first challenge to a “no-poaching” agreement—where companies agreenot to recruit or hire each other's employees—under the TrumpAdministration. The settlement that the Antitrust Division reachedwith the offending companies is noteworthy because the Divisionopted to treat the companies' no-poaching agreement as a civilantitrust violation even though the Division's guidelines forhuman resource professionals—which were issuedtoward the end of the Obama Administration—and recent remarks byits senior leadership team indicated that such agreements would betreated as criminal violations.

This settlement should not be viewed as a retreat from theAntitrust Division's promise to criminally prosecute no-poaching and “wage-fixing” agreements—wherecompanies agree on the compensation (e.g., wages, salary, andbenefits) they will make available to current or prospectiveemployees. Nor should this settlement be seen as signaling that theAntitrust Division's current leadership team views no-poaching orwage-fixing agreements as less serious antitrust offenses.

Related: DOJ tells HR professionals how to avoid illegalwage-fixing

As discussed below, a careful review of this settlement and theAntitrust Division's accompanying press release indicates thatthere is a significant likelihood that no-poaching and wage-fixingagreements that were entered into or that continued after theAntitrust Division issued its guidelines for human resourceprofessionals will be prosecuted as criminal violations.

Moreover, in announcing this settlement, the Antitrust Divisionmade clear that vigorous enforcement in the employment area willcontinue to be one of its top priorities. For instance, theAntitrust Division made a point to stress that it has severalactive no-poaching investigations involving various industries andthat this settlement is only part of its broader effort to ensurethat workers are not harmed by anticompetitive employmentpractices.

The Antitrust Division also indicated that it may soon beannouncing additional no-poaching enforcement actions byemphasizing that the settling companies are required to fullycooperate with the Division's ongoing investigations intono-poaching agreements that they may have entered into with othercompetitors.

The DOJ's recent policy shift toward criminallyprosecuting no-poach and wage-fixing agreements. Theantitrust laws apply to competition to hire employees just as muchas they do to competition to sell goods and services. Therefore,the Antitrust Division (and the Federal Trade Commission (FTC)) hasrepeatedly investigated and prosecuted companies for participatingin no-poaching and wage-fixing agreements. However, the AntitrustDivision historically treated these agreements as civil, ratherthan criminal, antitrust violations. In 2010, for example, theAntitrust Division brought a series of civil lawsuits againstseveral Silicon Valley companies for entering into no-poachagreements with their competitors. These cases resulted insettlements enjoining the companies from participating in thesetypes of agreements and requiring them to institute appropriatetraining and compliance programs. These companies also had tocollectively pay nearly $1 billion in order to settle severalfollow-on private lawsuits.

In October 2016, the Antitrust Division and FTC issued“Antitrust Guidance for Human Resource Professionals,” which, amongother things, announced that no-poach and wage-fixing agreementswill generally be treated as criminal antitrust offenses goingforward. In doing so, the agencies made clear that companies couldbe criminally prosecuted for entering into such agreements if theycompete for the same employees, irrespective of whether theycompete to sell the same products or services.

In January 2018, the new head of the AntitrustDivision—Assistant Attorney General Makan Delrahim—publicly statedthat the Division has several ongoing no-poach investigations andwould soon be bringing enforcement actions in these investigations:“In the coming couple of months, you will see some announcements,and to be honest with you, I've been shocked about how many ofthese [no-poach agreements] there are, but they're real.” Thiswarning followed public remarks by the Antitrust Division'ssecond-in-command—Principal Deputy Assistant Attorney GeneralAndrew Finch—late last year indicating that companies and theirexecutives “should be on notice” that they could be criminallyprosecuted for participating in no-poach or wage-fixing agreementsregardless of whether they compete to sell the same products orservices.

The DOJ's recent civil no-poachsettlement. In announcing its recent no-poachsettlement (United States v. Knorr-Bremse AG andWestinghouse Air Brakes Technologies), the AntitrustDivision explained that it exercised its prosecutorial discretionto treat the no-poach agreements as civil, rather than criminal,violations because the settling companies “formed and terminated[these agreements] before” the Antitrust Division and FTC issuedtheir Antitrust Guidance for Human Resource Professionals.

Notably, the Antitrust Division also explained that it haduncovered these no-poach agreements during a separate investigationinto one of the settling companies' acquisition of a thirdcompetitor, which once again reminds merging parties to use the duediligence process to check for any possible antitrust issues priorto entering into a merger subject to the antitrust agencies'review.

In its complaint, the Antitrust Division alleged that thesettling companies “entered into pervasive no-poach agreements thatspanned multiple business units and jurisdictions” between 2009 and2016. The complaint also alleged that both companies entered intoseparate no-poach agreements during this same period with the thirdcompetitor that was subsequently acquired by one of the settlingcompanies. According to the complaint, these no-poach agreementsharmed various types of rail equipment employees—such as projectmanagers, engineers, sales executives, business unit heads, andcorporate officers—by “den[ying] … [them] access to better jobopportunities, restrict[ing] their mobility, and depriv[ing] themof competitively significant information that they could have usedto negotiate for better terms of employment.”

Moreover, the Antitrust Division alleged that senior executiveswere actively involved in entering into and enforcing theseno-poach agreements. To support these allegations, the AntitrustDivision cited a number of communications involving the companies'senior executives. For instance, the Antitrust Division cited aletter exchanged between the companies where a senior executivewrote: “[Y]ou and I both agreed that our practice of not targetingeach other's personnel is a prudent cause for both companies. Asyou so accurately put it, 'we compete in the market.'”

The Antitrust Division also cited communications indicating thatthe companies instructed their internal and external recruiters toavoid targeting each other's employees due to their no-poachingagreements. In addition, the Antitrust Division citedcommunications showing that the companies declined to hire highlyqualified candidates—who submitted unsolicited applications—inorder to avoid violating their no-poaching agreements.

The settlement not only enjoins the companies from participatingin any unlawful no-poach agreements, but requires that theyaffirmatively institute “rigorous notification and compliancemeasures to preclude their entry into these types ofanticompetitive agreements in the future.” The settlement alsorequires the companies to fully cooperate with the AntitrustDivision's ongoing investigations into any other no-poachagreements that they may have entered with other competitors.

Moreover, the settlement requires the companies to reimburse theAntitrust Division for any costs associated with investigating andprosecuting their failure to comply with the settlement. Finally,the settlement provides that the Antitrust Division need onlysatisfy the preponderance of the evidence standard in any actionbrought to enforce the settlement—including a civil contemptaction—rather than the clear and convincing standard that typicallygoverns such actions.

In return, the Antitrust Division has agreed that it will not“bring any further civil actions or criminal charges against [thesettling companies] in connection with any other potential no-poachagreements that the companies disclosed to the [Division] prior to[the] lawsuit.”

Key takeaways for companies and their advisors

(1) In announcing its recent no-poach settlement, the AntitrustDivision stated that it has decided, “[i]n an exercise ofprosecutorial discretion,” to “pursue as civil violations no-poachagreements that were formed and terminated prior to [the issuanceof the Antitrust Guidance for Human Resource Professionals inOctober 2016].” Thus, no-poach agreements (and presumablywage-fixing agreements) that either were entered into or continuedafter the Antitrust Division issued its guidelines for humanresource professionals are likely to be prosecuted as criminalantitrust offenses, which significantly increases the risks forcompanies and executives involved in such agreements.

For instance, corporations found guilty of participating in acriminal no-poaching or wage-fixing agreement could be required topay up to $100 million in fines while individuals could be requiredto pay up $1 million in fines. (Alternatively, prosecutors couldseek a fine up to twice the gross financial loss or gain resultingfrom the violation.) Moreover, individuals criminally prosecutedfor participating in a no-poach or wage-fixing agreement could faceup to 10 years in prison. (In recent years, prison sentences forcriminal antitrust violations have averaged approximately twoyears.)

(2) The Antitrust Division will likely be announcing additionalno-poach enforcement actions in the near future. In the AntitrustDivision's press release, Assistant Attorney General Delrahimemphasized that “[t]oday's complaint is part of a broaderinvestigation by the Antitrust Division into naked agreements notto compete for employees,” and that the settling companies are“required to cooperate with the Antitrust Division in anyinvestigation into additional no-poach agreements to which they mayhave been counterparties.” In addition, press reports have citedAntitrust Division officials as stating that the Division “stillhas open civil and criminal investigations into other no-poachagreements in the rail equipment industry as well as in othersectors.”

(3) As part of their due diligence process, companiescontemplating a merger that is subject to review by the antitrustagencies should investigate whether there is evidence suggestingthat their employees or the other company's employees haveparticipated in an unlawful no-poach agreement or otheranticompetitive conduct. If so, the merging companies should takeappropriate steps to terminate any offending conduct and determinewhether they should or are required to self-report it. As part oftheir antitrust risk analysis, the merging companies should alsodetermine whether the discovery of an unlawful no-poach agreementor other anticompetitive conduct increases the likelihood that thereviewing agency will challenge the merger or open a separateinvestigation into such conduct.

The Antitrust Division's recent no-poach settlement representsthe latest example of numerous civil and criminal actions that theantitrust agencies have brought based on evidence uncovered duringa merger investigation. The corporate and individual guilty pleasthat the Antitrust Division has secured in its ongoing criminalinvestigation into price-fixing in the packaged tuna industry areadditional examples of enforcement actions that the AntitrustDivision has brought based on evidence uncovered during a mergerinvestigation.

Juan A. Arteaga, a partner at Crowell & Moring, was aDeputy Assistant Attorney General for the U.S. Department ofJustice's Antitrust Division between 2013 and 2017. Richard Stellais an associate at the firm, where he focuses on representingclients in antitrust and white-collar matters.