While antitrust enforcement is most often focused on illegal agreements among sellers, such as price fixing and bid rigging or customer or territorial allocation, enforcers also have challenged agreements among competitors for inputs into manufacturing a product or providing a service. As early as 1905, the Department successfully alleged that a group of meatpackers had formed an illegal cartel to reduce the price they paid for cattle. And the Department has recently said that “it makes no distinction between seller cartels and buyer cartels” in its enforcement.2 In hiring and setting wage rates for employees, companies are buyers, just as they are buyers for any input into their product and service.
For many years, and particularly during the past two decades, the government and private plaintiffs have focused on agreements among employers to suppress wages.
- In 1992, FTC entered a decision and order against several nursing homes charging them with an illegal agreement to boycott a nurse registry that attempted to raise prices for nurses providing short-term services.3
- In 2010, the Department brought civil actions against a number of high-tech firms whose CEOs had agreed not to poach one another’s employees.4
- In 2016, the Department and FTC issued guidance that stated that naked — that is, unconnected to legitimate arrangements — no-poach, nonsolicitation, and wage-fixing agreements entered into after fall 2016 would be investigated as potentially criminal.5
- Two years later, in 2018, the Department challenged civilly a years-long no-poach agreement between Westinghouse Air Brake and Knorr-Bremse.6
- Also in 2018, FTC alleged Your Therapy Source and its two owners entered into an agreement to lower wages for contracted physical therapists and invited four others to collude on those rates and entered a consent agreement with defendants that prohibited future collusion or invitations to collude with competitors on wages paid to their employees or independent contractors.7
- Most recently, in January 2020, FTC alleged that a no-hire and nonsolicit provision in a merger agreement was unreasonable. In particular, in its administrative complaint challenging Axon Enterprise’s consummated acquisition of VieVu from Safariland, FTC alleged the provision prohibiting Safariland and Axon from hiring or soliciting each other’s current and certain former employees for a period of 10 years was not sufficiently limited in scope or duration to protect a legitimate business interest.8
Leadership in the Antitrust Division has repeatedly stated that it had opened a number of grand juries to investigate no-poach or wage fixing agreements,9 but this new indictment is the Department’s first criminal case alleging wage suppression. In this case the Department contends that the defendant, as owner of a staffing company that provides various types of therapists and assistants to home health companies to treat the latter’s patients, entered into an agreement with at least one other staffing company to reduce the wages of physical therapists and therapist assistants and sought to recruit other staffing companies to join the conspiracy. The indictment relies on text messages the defendant sent to his competitors and an exchange between one of his employees and another competitor to demonstrate that his company sought to reach (and in one instanced reached) agreement on proposed wage decreases. The charge under Section 1 of the Sherman Act has a maximum penalty of 10 years in prison and a $1 million fine for individuals. Sentences for those convicted under the Sherman Act have averaged more than two years.
In addition to the Sherman Act claim, the indictment also alleges that the defendant obstructed a related investigation at the FTC. As noted above, in 2018, the FTC charged that the defendant, his co-owner, and their company decided to reduce wage rates and invited others to collude. The FTC asserted that the conduct violated Section 5 of the Federal Trade Commission Act10 and obtained a consent decree prohibiting future, similar behavior.11 The indictment alleges that during the course of the FTC’s investigation the defendant provided false information and testified falsely about his conduct.
Takeaways
In addition to being the first criminal wage fixing indictment obtained by the Department of Justice, this case provides a number of useful reminders:
- Agreements between employers who compete for or hire the same type of workers to fix wages or not to solicit or hire each other’s employees can be a criminal offense. We expect the new administration to be equally if not more focused on prosecuting these sorts of agreements both criminally and civilly.
- A wage fixing or no-hire agreement does not have to be between companies that compete for sales to be illegal; such agreements are illegal between entities that compete for the same type of employees, regardless of their business. For example, companies in two different industries may both want to hire a particular type of engineer; a naked no-hire agreement between those companies would be illegal.
- Agreements not to hire or solicit employees contained in joint venture or merger agreements are generally legal but must be limited in both scope and time to what is necessary to protect the parties.
- One of the primary ways the agencies discover illegal no-hire, nonsolicit, and wage fixing agreements is during the review of pending mergers and acquisitions. Parties considering strategic transactions that may be the subject of close antitrust review should confirm prior to filing that there not any such agreements in place at either party. If there are concerns, the parties may seek representations regarding the absence of such agreements.
- Providing misleading or false information to an investigative agency, even in a civil investigation, can be a crime; at the very least it will result a total loss of credibility with the agency.
- Noncompetes imposed on employees as an alternative to no-hire agreements can be unsuccessful; an increasing number of jurisdictions make noncompetes unenforceable, and overbroad ones may be unenforceable in most jurisdictions.
1 https://www.justice.gov/opa/press-release/file/1344191/download
2 Organization for Economic Co-operation and Development, Roundtable on Monopsony and Buyer Power: Note by the United States 2 (2008), https://www.ftc.gov/sites/default/files/attachments/us-submissions-oecd-and-otherinternational- competition-fora/monopsony.pdf.
3 In re Debes Corp., 115 F.T.C. 701 (1992).
4 See, e.g., Competitive Impact Statement, United States v. Lucasfilm Ltd., 1:10-cv-02220 (D.D.C. Dec. 21, 2010), https://www.justice.gov/atr/case-document/competitive-impact-statement-141.
5 U.S. Dep’t of Justice & Federal Trade Commission, Antitrust Guidance for Human Resource Professionals (Oct. 2016), https://www.justice.gov/atr/file/903511/download.
6 Competitive Impact Statement, United States v. Knorr-Bremse AG, 1:18-cv-00747 (D.D.C. Spr. 3, 2018), https://www.justice.gov/atr/case-document/file/1048891/download. Private plaintiffs have also been active. In 2015, a class of nurses settled claims with eight Detroit-area hospitals alleging that they had fixed wages in part through the exchange of salary information. https://www.michiganradio.org/post/detroit-medical-center-agrees-settle-nurses-end-long-running-antitrust-lawsuit.
7 Complaint, In the Matter of Your Therapy Source, LLC, Dkt. No. C-4689 (Oct. 31, 2019), https://www.ftc.gov/system/files/documents/cases/171_0134_c4689_yourtherapysource_complaint.pdf; see also Statement of the Federal Trade Commission Concerning the Commission’s Consent Order, FTC File No. 171-0134 (Oct. 31, 2019), https://www.ftc.gov/system/files/documents/public_statements/1552414/171_0134_your_therapy_
source_commission_statement.pdf.
8 Complaint, In the Matter Axon Enterprise, Inc., Dkt. No. D-9389 (Jan. 3, 2020), https://www.ftc.gov/system/
files/documents/cases/d09389_administrative_part_iii_-_public_redacted.pdf.
9 See, e.g., https://www.justice.gov/atr/division-operations/division-update-spring-2018/antitrust-division-continues-investigate-and-prosecute-no-poach-and-wage-fixing-agreements.
10 15 U.S.C. §45.
11 See, infra Note 8 and accompanying text.
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