US Government Takes on Wage Fixing and Non-Competes

US Government Takes on Wage Fixing and Non-Competes

Within the past week, the Obama administration has taken steps to discourage employers from engaging in two forms of anti-competitive activity, one of which is illegal and the other, the administration argues, ought to be. Last Thursday, the Department of Justice and the Federal Trade Commission jointly issued a set of guidelines for HR professionals explaining that collusion between businesses to fix wages or agree not to poach employees from each other violates federal antitrust laws. Furthermore, whereas the DOJ has brought civil enforcement actions against several employers over such agreements, including some major technology companies, it plans to begin addressing these violations with criminal charges instead:

Going forward, the DOJ intends to proceed criminally against naked wage-fixing or no-poaching agreements. These types of agreements eliminate competition in the same irredeemable way as agreements to fix product prices or allocate customers, which have traditionally been criminally investigated and prosecuted as hardcore cartel conduct. Accordingly, the DOJ will criminally investigate allegations that employers have agreed among themselves on employee compensation or not to solicit or hire each others’ employees. And if that investigation uncovers a naked wage-fixing or nopoaching agreement, the DOJ may, in the exercise of its prosecutorial discretion, bring criminal, felony charges against the culpable participants in the agreement, including both individuals and companies.

One expert tells SHRM’s Roy Maurer that now would be a very good time for employers to double-check their policies for compliance:

“This is a major policy shift,” said Phillip Warren, a partner in the San Francisco office of Covington & Burling and a 30-year veteran of the DOJ’s antitrust division. “The government has filed civil antitrust cases involving hiring and compensation, but it has never filed a criminal case in this area. This change makes it important for companies to promptly audit their human resources policies and practices to identify any potentially illegal conduct and to take quick action.

“Early discovery of potential problems will put companies in the best position to formulate an optimal strategy―to mitigate risk or even avoid criminal exposure altogether,” he added.

The administration’s other target is non-compete clauses, which the White House and the US Treasury both excoriated in reports earlier this year and which several states have moved to restrict. In a call to action issued on Tuesday, the White House urged states to redouble their efforts to ban noncompetes in circumstances in which they are unwarranted, Reuters reports:

The administration said so-called non-compete agreements interfere with worker mobility and states should consider barring companies from requiring low-wage workers and other employees who are not privy to trade secrets or other special circumstances to sign them. Vice President Joe Biden in a statement said he had heard from a teacher in Nebraska who was barred from taking a summer job selling pet food to earn extra money. Among others, Biden also mentioned a salesman in Connecticut who was laid off and forced to spend his retirement savings because he was prohibited from accepting other sales jobs. …

The Obama administration on Tuesday also urged states to ban non-compete agreements that are not proposed before a job offer or promotion is accepted and said employers should not be able to enforce the agreements when workers are laid off. The White House said 20 percent of U.S. workers are bound by non-compete agreements, including 14 percent of those earning less than $40,000 per year.

The White House also brought two big names in Silicon Valley on its press call to explain why their companies generally avoid penning employees in with non-competes, TechRepublic adds:

Lori Goler, head of human resources at Facebook, joined the call to discuss how Facebook does not use non-competes in its employment offers in any jurisdiction in the US. “We don’t believe [employees] should have to stay at Facebook if it isn’t a good fit for them,” Goler said. “We generally believe free movement allows for a healthy exchange of talent across the ecosystem.”

Cisco also does not ask employees to sign noncompete agreements, said Mark Chandler, Cisco’s senior vice president and general counsel. “We think it’s unfair to lock people up under employment when there are good trade secret laws that protect that when people move,” Chandler said. “When innovation thrives and employees can move and find new opportunities, we think our boat rises as well.”