Wage-fixing and no-poach agreements

Peter J. Levitas

Antitrust laws are intended to ensure that firms compete fairly in an open marketplace, including to hire or retain employees. Physician practices that agree with each other not to compete for employees face significant antitrust risk unless those agreements are related to legitimate business collaborations. Physician practices that agree to fix or lower wages face even greater antitrust risk. Physicians, managers and human resources professionals should consider antitrust risks carefully before entering into labor-related agreements with competing employers.

Wage-fixing and no-poach agreements

A wage-fixing agreement is an agreement with another employer to limit wages, salaries or other employee benefits; such agreements are illegal under the antitrust laws. A “no-poach” or “non-solicit” agreement is an agreement with another employer not to hire or solicit its employees. No-poach or non-solicit agreements may be acceptable if they are entered into in connection with legitimate business collaborations, but a “naked” no-poach or non-solicit agreement that is unrelated to any legitimate business collaboration or agreement is illegal under the antitrust laws.1

The federal antitrust agencies (the U.S. Department of Justice and the Federal Trade Commission) and state attorneys general can bring enforcement actions against physician practices that enter wage-fixing and no-poach agreements. These actions can include felony charges against individual physicians, who may face monetary fines and even imprisonment. Private plaintiffs, including employees, can also sue physician practices for such conduct and may obtain treble damages.

Some agreements acceptable if necessary for legitimate collaborations or transactions

No-poach or non-solicit agreements may be legal if they are related to legitimate collaborations or business transactions and “reasonably necessary” for those collaborations or transactions to move forward. Acceptable agreements may include:

Joint venture partners agreeing not to hire or recruit employees involved in the joint venture;

A business agreeing not to hire or recruit employees with whom the business has come into contact while negotiating or conducting diligence for a transaction;

The seller of a business agreeing with the purchaser that the seller will not, for a limited period of time, rehire or recruit key employees from the business being sold; or

A business agreeing not to hire or recruit employees whom a consultant has staffed on a project for the business.

Any such agreements should also be narrowly tailored. For example, if a business agrees not to recruit employees from a consultant, that agreement should apply only to employees who had contact with the business during the consulting project.

Increased prosecution and private litigation

The federal antitrust agencies have been actively investigating and prosecuting firms that enter into illegal wage-fixing and no-poach agreements, including in the health care industry. Most recently, on July 31, 2018, the FTC and the Texas Attorney General charged Your Therapy Source, a Dallas/Fort Worth company that provides therapist staffing services to home health agencies, with unlawfully colluding to limit pay for therapists and inviting other competitors to do the same.2

Beyond the health care industry, there has been a long string of enforcement actions in recent years. For example, starting in 2010, the DOJ brought several high-profile cases against technology companies that entered into no-poach agreements with competitors, suing Adobe, Apple, Google, Intel, Pixar and Lucasfilm, as well as eBay and Intuit. In each of these cases, the DOJ alleged that these agreements were aimed at reducing competition for highly skilled technical employees and, therefore, suppressed wages.

The federal antitrust agencies are actively seeking additional cases. On April 3, 2018, the DOJ announced a no-poach enforcement action in Knorr-Bremse AG and Westinghouse Air Brake Technologies Corporation. At the same time, Assistant Attorney General Makan Delrahim of the DOJ Antitrust Division stated, “Today’s complaint is part of a broader investigation by the Antitrust Division into naked agreements not to compete for employees.” Similarly, when the FTC announced its enforcement action in Your Therapy Source, Bruce Hoffman, director of the Bureau of Competition at the FTC, stated, “We will aggressively investigate any other instances in which companies engage in this type of behavior, and we will seek relief commensurate with the conduct, the harm to workers, and — where appropriate — any ill-gotten benefits received by the firms engaged in the illegal activities.”3

DOJ/FTC guidance regarding risky conduct

The DOJ and FTC have jointly issued a non-exhaustive list of agreement “red flags” that should prompt caution, including:

Agreeing with another company to refuse to hire that other company’s employees;

Agreeing with another company about employee salary or other terms of compensation, either at a specific level or within a range;

Agreeing with another company about employee benefits or other terms of employment;

Communicating to competitors that you both should limit competition for employees;

Exchanging company-specific information about compensation or terms of employment with another company;

Participating in a meeting, including a trade association meeting, where the above topics are discussed;

Discussing the above topics with colleagues at other companies, including during social events or non-professional settings; and

Receiving documents that contain another company’s internal data about employee compensation.

Any businesses considering an agreement with provisions of this sort should consider carefully whether the agreement may violate the antitrust laws.

How to limit risk

Physicians, managers and human resources professionals can decrease risk by doing the following:

Ensuring that those responsible understand the risks associated with recruiting and solicitation agreements and the rules of the road for entering into such agreements;

Ensuring that compliance training covers wage-fixing and no-poach agreements;

Reviewing existing and proposed contracts for any wage-fixing or no-poach provisions and considering removing or modifying any such provisions, even if they have not been enforced; and

Consulting antitrust counsel if you believe that your practice may have engaged in any inappropriate wage-fixing or no-poach agreements.

Conclusion

Antitrust authorities are focused on protecting competition for employees. Accordingly, physician practices should carefully consider antitrust risk when entering into any labor-related agreements with competing employers.

 

References:

1. Whether such agreements are formal or informal, written or unwritten, explicit or implicit — if the parties have agreed, the agreement is subject to antitrust enforcement. If two or more firms exchange wage information, that may be considered as evidence of an agreement regarding wages. The exchange of wage information itself might also be an antitrust violation if it decreases or is likely to decrease competition for the relevant workers.

2. The owner of Your Therapy Source and the former owner of a competing staffing company were also charged. The Your Therapy Source case is not the only no-poach lawsuit in the health care industry. In 2006, a group of registered nurses sued Baptist Memorial Healthcare Corporation and Methodist Healthcare of Memphis, Tennessee, alleging that the defendant hospitals conspired to suppress the wages paid to registered nurses. In 2007, DOJ sued the Arizona Hospital & Healthcare Association for setting a uniform rate schedule for temporary and per diem nurses. In 2015, a group of physicians filed a lawsuit against Duke University, Duke University Health System, the University of North Carolina and the University of North Carolina Health System, alleging Duke University and the University of North Carolina agreed not to hire or attempt to hire certain medical facility faculty and staff employed by the other institution.

3. State attorneys general have also increased enforcement actions against firms that may be parties to illegal wage-fixing and no-poach agreements. In July 2018, state attorneys general from 11 states formed a coalition to investigate no-poach agreements in franchise contracts that restrict the ability of a firm to recruit or hire employees from the franchisor or another franchisee of the same chain. As part of the investigation, the coalition requested information about no-poach policies and practices from several fast food franchises, including Arby’s, Burger King, Dunkin’ Donuts, Five Guys, Little Caesars, Panera Bread, Popeyes and Wendy’s. State attorneys general have since announced investigations into Anytime Fitness, Applebee’s, Auntie Anne’s, Baskin-Robbins, Buffalo Wild Wings, Carl’s Jr., Church’s Chicken, Cinnabon, Circle K, Denny’s, Domino’s, Firehouse Subs, IHOP, Jamba Juice, Jimmy John’s, McDonald’s, Papa John’s, Pizza Hut, Planet Fitness, Sonic, Valvoline and Wing Stop.

 

For more information:

Peter J. Levitas, a partner at Arnold & Porter, can be reached at email: peter.levitas@arnoldporter.com.

Keron J. Morris, an associate at Arnold & Porter, can be reached at email: keron.morris@arnoldporter.com.

 

Peter J. Levitas

Antitrust laws are intended to ensure that firms compete fairly in an open marketplace, including to hire or retain employees. Physician practices that agree with each other not to compete for employees face significant antitrust risk unless those agreements are related to legitimate business collaborations. Physician practices that agree to fix or lower wages face even greater antitrust risk. Physicians, managers and human resources professionals should consider antitrust risks carefully before entering into labor-related agreements with competing employers.

Wage-fixing and no-poach agreements

A wage-fixing agreement is an agreement with another employer to limit wages, salaries or other employee benefits; such agreements are illegal under the antitrust laws. A “no-poach” or “non-solicit” agreement is an agreement with another employer not to hire or solicit its employees. No-poach or non-solicit agreements may be acceptable if they are entered into in connection with legitimate business collaborations, but a “naked” no-poach or non-solicit agreement that is unrelated to any legitimate business collaboration or agreement is illegal under the antitrust laws.1

The federal antitrust agencies (the U.S. Department of Justice and the Federal Trade Commission) and state attorneys general can bring enforcement actions against physician practices that enter wage-fixing and no-poach agreements. These actions can include felony charges against individual physicians, who may face monetary fines and even imprisonment. Private plaintiffs, including employees, can also sue physician practices for such conduct and may obtain treble damages.

Some agreements acceptable if necessary for legitimate collaborations or transactions

No-poach or non-solicit agreements may be legal if they are related to legitimate collaborations or business transactions and “reasonably necessary” for those collaborations or transactions to move forward. Acceptable agreements may include:

Joint venture partners agreeing not to hire or recruit employees involved in the joint venture;

A business agreeing not to hire or recruit employees with whom the business has come into contact while negotiating or conducting diligence for a transaction;

The seller of a business agreeing with the purchaser that the seller will not, for a limited period of time, rehire or recruit key employees from the business being sold; or

A business agreeing not to hire or recruit employees whom a consultant has staffed on a project for the business.

Any such agreements should also be narrowly tailored. For example, if a business agrees not to recruit employees from a consultant, that agreement should apply only to employees who had contact with the business during the consulting project.

PAGE BREAK

Increased prosecution and private litigation

The federal antitrust agencies have been actively investigating and prosecuting firms that enter into illegal wage-fixing and no-poach agreements, including in the health care industry. Most recently, on July 31, 2018, the FTC and the Texas Attorney General charged Your Therapy Source, a Dallas/Fort Worth company that provides therapist staffing services to home health agencies, with unlawfully colluding to limit pay for therapists and inviting other competitors to do the same.2

Beyond the health care industry, there has been a long string of enforcement actions in recent years. For example, starting in 2010, the DOJ brought several high-profile cases against technology companies that entered into no-poach agreements with competitors, suing Adobe, Apple, Google, Intel, Pixar and Lucasfilm, as well as eBay and Intuit. In each of these cases, the DOJ alleged that these agreements were aimed at reducing competition for highly skilled technical employees and, therefore, suppressed wages.

The federal antitrust agencies are actively seeking additional cases. On April 3, 2018, the DOJ announced a no-poach enforcement action in Knorr-Bremse AG and Westinghouse Air Brake Technologies Corporation. At the same time, Assistant Attorney General Makan Delrahim of the DOJ Antitrust Division stated, “Today’s complaint is part of a broader investigation by the Antitrust Division into naked agreements not to compete for employees.” Similarly, when the FTC announced its enforcement action in Your Therapy Source, Bruce Hoffman, director of the Bureau of Competition at the FTC, stated, “We will aggressively investigate any other instances in which companies engage in this type of behavior, and we will seek relief commensurate with the conduct, the harm to workers, and — where appropriate — any ill-gotten benefits received by the firms engaged in the illegal activities.”3

DOJ/FTC guidance regarding risky conduct

The DOJ and FTC have jointly issued a non-exhaustive list of agreement “red flags” that should prompt caution, including:

Agreeing with another company to refuse to hire that other company’s employees;

Agreeing with another company about employee salary or other terms of compensation, either at a specific level or within a range;

Agreeing with another company about employee benefits or other terms of employment;

Communicating to competitors that you both should limit competition for employees;

Exchanging company-specific information about compensation or terms of employment with another company;

Participating in a meeting, including a trade association meeting, where the above topics are discussed;

Discussing the above topics with colleagues at other companies, including during social events or non-professional settings; and

Receiving documents that contain another company’s internal data about employee compensation.

Any businesses considering an agreement with provisions of this sort should consider carefully whether the agreement may violate the antitrust laws.

PAGE BREAK

How to limit risk

Physicians, managers and human resources professionals can decrease risk by doing the following:

Ensuring that those responsible understand the risks associated with recruiting and solicitation agreements and the rules of the road for entering into such agreements;

Ensuring that compliance training covers wage-fixing and no-poach agreements;

Reviewing existing and proposed contracts for any wage-fixing or no-poach provisions and considering removing or modifying any such provisions, even if they have not been enforced; and

Consulting antitrust counsel if you believe that your practice may have engaged in any inappropriate wage-fixing or no-poach agreements.

Conclusion

Antitrust authorities are focused on protecting competition for employees. Accordingly, physician practices should carefully consider antitrust risk when entering into any labor-related agreements with competing employers.

 

References:

1. Whether such agreements are formal or informal, written or unwritten, explicit or implicit — if the parties have agreed, the agreement is subject to antitrust enforcement. If two or more firms exchange wage information, that may be considered as evidence of an agreement regarding wages. The exchange of wage information itself might also be an antitrust violation if it decreases or is likely to decrease competition for the relevant workers.

2. The owner of Your Therapy Source and the former owner of a competing staffing company were also charged. The Your Therapy Source case is not the only no-poach lawsuit in the health care industry. In 2006, a group of registered nurses sued Baptist Memorial Healthcare Corporation and Methodist Healthcare of Memphis, Tennessee, alleging that the defendant hospitals conspired to suppress the wages paid to registered nurses. In 2007, DOJ sued the Arizona Hospital & Healthcare Association for setting a uniform rate schedule for temporary and per diem nurses. In 2015, a group of physicians filed a lawsuit against Duke University, Duke University Health System, the University of North Carolina and the University of North Carolina Health System, alleging Duke University and the University of North Carolina agreed not to hire or attempt to hire certain medical facility faculty and staff employed by the other institution.

3. State attorneys general have also increased enforcement actions against firms that may be parties to illegal wage-fixing and no-poach agreements. In July 2018, state attorneys general from 11 states formed a coalition to investigate no-poach agreements in franchise contracts that restrict the ability of a firm to recruit or hire employees from the franchisor or another franchisee of the same chain. As part of the investigation, the coalition requested information about no-poach policies and practices from several fast food franchises, including Arby’s, Burger King, Dunkin’ Donuts, Five Guys, Little Caesars, Panera Bread, Popeyes and Wendy’s. State attorneys general have since announced investigations into Anytime Fitness, Applebee’s, Auntie Anne’s, Baskin-Robbins, Buffalo Wild Wings, Carl’s Jr., Church’s Chicken, Cinnabon, Circle K, Denny’s, Domino’s, Firehouse Subs, IHOP, Jamba Juice, Jimmy John’s, McDonald’s, Papa John’s, Pizza Hut, Planet Fitness, Sonic, Valvoline and Wing Stop.

 

For more information:

Peter J. Levitas, a partner at Arnold & Porter, can be reached at email: peter.levitas@arnoldporter.com.

Keron J. Morris, an associate at Arnold & Porter, can be reached at email: keron.morris@arnoldporter.com.

 

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