Casual Conversation Becomes Criminal Conduct: Wage-Fixing and No Poaching Agreements

Employers need to be aware that casual conversations between competitors can now create significant legal risks. Recently, the Department of Justice (“DOJ”) has filed criminal charges against several employers alleging they illegally engaged in “wage fixing” or illegally entered “no poaching” agreements.  Although the cases filed have been unsuccessful so far, we expect the DOJ to continue pursuing these charges.

The Guidance

In 2016, the DOJ and Federal Trade Commission (“FTC”) jointly issued updated guidance regarding antitrust laws as they apply to competition among companies to hire employees (the “Guidance”). The Guidance explains that, under antitrust laws, it is illegal to (1) agree with another company about terms and conditions of an employee’s compensation (“wage-fixing” agreements, which could include agreeing how much each competitor will pay their employees in certain jobs), or (2) agree with another company to refuse to solicit or hire each other’s employees (called “no poaching” agreements).

Specifically, the Guidance clarifies that:

• Agreements between competitors to limit or fix the terms of employment for employees may be illegal, and subject both the company and the individual executives to criminal penalties.

• “Competitors” is defined broadly as “firms that compete to hire or retain employees, regardless of whether the firms make the same products or compete to provide the same services.” Please note that this includes employers in different industries but who compete for the same workers in the marketplace.

• Agreements do not have to be express; the DOJ may infer an agreement based on evidence of discussions and/or parallel behavior.

• Indirect agreements through a third-party intermediary (like a staffing firm) are also illegal if they are separate from or not reasonably necessary to a larger, legitimate collaboration between the employers.

Increased Enforcement but No Guilty Verdicts…Yet

Despite the Guidance being issued in 2016, the DOJ did not bring its first criminal indictment until late 2020, when it alleged a wage-fixing scheme existed between two Texas physical therapy companies. The companies argued that their conduct was not per se illegal, and that the charge violated their due process rights since no court had ever previously found wage-fixing to be a criminal offense. The court disagreed, saying the companies were simply in the “unlucky” position of being the first accused of the crime; the court allowed the charges to move forward as antitrust charges. While the DOJ was ultimately unsuccessful in this case, the DOJ has now established the legitimacy of these sorts of claims.

The DOJ continues to increase its enforcement efforts, bringing more criminal indictments against companies and their executives in 2021 and early 2022. In December, for example, the DOJ brought criminal charges against a former aerospace outsourcing executive for agreeing not to hire a competitors’ employees, alleging that the scheme illegally limited workers’ career prospects and earnings. Although the executive was ultimately found not guilty, he faced up to 10 years of imprisonment and a $1 million fine (which could be increased depending on the loss suffered by the workers). And, a class action making the same allegations followed his indictment.

Takeaways for employers

The DOJ has indicated it will continue to “vigorously pursue” these sorts of claims. Given the labor shortage and increasing competition for workers, employers need to be wary of having employment-related conversations with other companies, particularly those who could be construed as competitors (either because they sell a similar product or service or because they compete in hiring the same workers). Such conversations may seem harmless, but can carry expensive and personal criminal consequences.

This article is for informational purposes only and should not be considered legal advice. Please consult with your legal counsel regarding any specific situation, particularly given that this is a developing area of the law.

Written by Jordan Brownlow and Christie Newkirk from Carrington, Coleman, Sloman & Blumenthal, L.L.P.