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Texas Construction Law Blog For Subcontractors & Suppliers

Anti-Poaching and Wage-Fixing Agreements: Drawing the Line Between Competitive and Criminal

Posted in Business Management, Labor/Workforce

Originally published in Build Houston magazine.

In October 2016, the Antitrust Division of the U.S. Department of Justice (DOJ) issued guidance identifying poaching agreements and wage-fixing agreements as primary antitrust enforcement targets.  In April 2018, DOJ brought the Department’s first enforcement case over illegal anti-competitive employment related agreements.

In a market where skilled labor is in increasingly high demand, and the price of labor continues to rise, scrutiny of employment-related agreements is also on the rise.  Industries facing skilled labor shortages are natural targets of DOJ scrutiny, the construction industry is no exception.

Even under the Trump Administration, DOJ has made clear that it intends to zealously enforce the antitrust laws in labor markets and aggressively pursue information on additional violations to identify and end anticompetitive no-poach agreements that harm employees and the economy.  Principal Deputy Assistant Attorney General Andrew Finch stated that “the Division expects to pursue criminal charges” at the felony level for no-poach agreements.

From an antitrust perspective, firms that compete to hire or retain employees are competitors in the employment marketplace.  This is true even if the products and services that they sell do not necessarily compete in the same product market.  It is unlawful for competitors to expressly or implicitly agree not to compete with one another, even if they are motivated by a desire to reduce costs or obtain other efficiencies.

Accordingly, employers may not agree with competitors to refrain from hiring one another’s employees, or to hold wages or contract prices for certain contractors or sub-contractors to an agreed level.  Even mere conversations about these types of agreements, while inherently difficult to prove, are improper and could be illegal.

Agreements and information exchanges among employers that compete to hire or retain employees may be illegal. To avoid DOJ scrutiny its best to avoid:

  • Coordination related to salary, benefits or terms of employment.
  • Agreeing with another company to refuse to solicit or hire that company’s employees.
  • Exchanging company-specific information about employee compensation or terms of employment with another company.
  • Receiving documents that contain another company’s internal data about employee compensation

However, not all agreements among competitors to refrain from hiring each other’s employees are deemed per se unlawful.  Similar agreements that are reached in the context of a legitimate business transaction or collaboration (e.g., joint venture or the sale of a business) between companies may be viewed as reasonably necessary to achieve the purpose of the transaction or collaborative arrangement.  Thus, in the context of a larger legitimate business arrangement, no-poach provisions could be viewed as a valid ancillary restraint.  To be clear, the DOJ does not prohibit all agreements related to employee solicitation and recruitment.  In previous challenges to similar conduct, the DOJ has clarified that its enforcement actions do not prohibit non-solicitation provisions reasonably necessary for:

  • Mergers or acquisitions (consummated or unconsummated), investments, or divestitures, including due diligence related actions;
  • Contracts with consultants or recipients of consulting services, auditors, outsourcing vendors, recruiting agencies or providers of temporary employees or contract workers; and
  • The settlement or compromise of legal disputes.

Entering into anticompetitive no-poach agreements can also spark private antitrust lawsuits by those injured by the anticompetitive conduct.  In private antitrust actions, a prevailing plaintiff can recover three times their actual damages.  Thus, private antitrust lawsuits can expose defendants to significant monetary penalties.  Private antitrust actions often arise as follow-on complaints after a successful government case.

It is recommended to get guidance from counsel prior to discussing any of these issues with competitors or trade associations.