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Anti-trust concerns in hiring and compensation

April 3, 2017

By Michael Burns, courtesy of SBAM Approved Partner ASE

On the list of wrongful employment practice issues, the risk of engaging in illegal anti-trust practices is pretty far down there. But everyday, employers in competitive industries (think tech) aggressively recruit and seek to retain valuable talent through various employment policies and practices. Some employers take these practices too far. What kinds of employment practices could result in a federal anti-trust lawsuit?

Late last year, the Federal Trade Commission (FTC) and the Department of Justice (DOJ) Antitrust Division published guidance for companies that detail what hiring and compensation practices could get them prosecuted. The agencies pointed to no-poaching agreements. These are agreements among a group of employers with common sets of jobs they each recruit for. No-poaching agreements (formal or “wink and a nod”) seek to restrict employee’s freedom to go to another employer because the second employer has agreed to not hire any employees from the first employer, thereby restricting the employee’s livelihood and pay. 

The second type of employment practice that the FTC and DOJ will pursue if found is wage-fixing agreements. These agreements exist when employers in a local/regional area agree to fix wages and other terms of employment. Just recently a class action complaint was brought in California where two employees of Carl’s Jr. restaurant brought suit against the franchise and parent company, Carl Karcher Enterprises, asserting they conspired to suppress wages of store managers through no-hire agreements that stated franchisees of Carl’s agreed not to employ or seek to employ managers of other franchises. The complaint alleges that this agreement prevented franchises from competing for the best employees. 

On a side note, this is the company whose CEO, Andrew Puzder, was up for US Department of Labor Secretary. He dropped out and then quickly retired from his CEO position at Carl’s Jr.

Does this mean employers should not use wage, salary and benefit data within their industry or area or otherwise not participate in surveys collecting this information. Certainly not. Employers do have a right to research and determine what the market is paying for workers in particular jobs. Legitimate compensation surveys are published under certain guidelines that are followed to avoid antitrust concerns. For example, the data used in ASE’s wage and salary is aggregated in samples large enough to maintain anonymity of participants. If a sample is too small the data is not published.  It is also dated so as to  avoid providing information that would allow wage fixing. 

In any case, between the FTC, DOJ and the chance a civil suit from one’s own employees, employers should review, and if found, eliminate employment agreements that may be seen as colluding with competitors or other local employers in restricting employment among them. This may also include the use of much more common but overly restrictive non-compete agreements that many employers use today. These agreements are also under scrutiny by authorities, particularly when used to restrict employment of junior-level and low-wage employees. Non-compete agreements are restrictive covenants that restrict employees from working for a competitor in a local geographic region for a set period of time. Many states are now passing legislation limiting the use of non-competes and courts have long overturned overly restrictive non-compete provisions. There also was federal legislation that although it did not pass, sought to prohibit the use of any non-compete agreements for employees earning less than $15/hr.

Again, employers need to carefully consider the value of such agreements as well as the potential risk of using them too liberally in their company. 

That said, well considered and drafted non-compete agreements can legitimately protect an employer’s business interests. It is recommended that competent legal counsel be used to draft the agreements.

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