No-Poaching and Wage-Fixing Agreements Draw Antitrust Scrutiny
Unemployment remains at historic lows, and workers are demanding higher salaries, more flexibility, and greater work-life balance. Organizations are competing for a limited pool of skilled employees. In this tight labor market, employers increasingly engage in anticompetitive practices to obtain and retain qualified talent.
Two commonly used tools are no-poaching and wage-fixing agreements. In no-poaching agreements, organizations agree not to hire each other’s employees. These agreements often involve franchisees — one study found that 58% of franchise agreements included no-poaching clauses. In wage-fixing agreements, organizations agree to limit the wages they will pay workers or simply exchange information about wages.
Antitrust watchdogs have put no-poaching and wage-fixing agreements in their crosshairs. Federal and state agencies are stepping up challenges to such agreements to ensure competitiveness and mobility in the U.S. labor market. Employers should take steps to reduce the risk of significant fines and even criminal penalties for anticompetitive practices.
Why No-Poaching and Wage-Fixing Agreements Are Problematic
Agreements among sellers to fix the prices of goods or services have long been considered anticompetitive. The Sherman Antitrust Act was the first federal law prohibiting anticompetitive practices, including price-fixing agreements. Over time, federal courts have ruled that certain practices are per se violations of the Act, with clear harm to consumers. With per se violations, the government must only prove that the conduct occurred.
Price fixing among buyers is similarly prohibited. Employers are buyers of labor, and wage-fixing agreements deprive workers of the benefits of a competitive market. A March 2022 report by the Department of the Treasury found that anticompetitive practices depress wages by about 20%. Some courts have held that no-poaching and wage-fixing agreements are per se violations of the Sherman Antitrust Act.
Large employers and franchisors have monopsony (one-buyer) power in increasing numbers of labor markets. Monopsonies, like monopolies, concentrate all market power in one or a few companies. In labor markets, monopsonies prevent free-market efficiencies, hinder job mobility, and limit innovation.
Federal Criminal Prosecutions for Antitrust Violations
The Sherman Antitrust Act vests the Department of Justice (DOJ) with the authority to bring suits against violators. Increasingly, the DOJ has turned its antitrust attention to no-poaching and wage-fixing agreements, albeit with civil lawsuits rather than criminal actions. In 2010, for example, the DOJ sued six large tech companies for agreeing not to recruit each other’s skilled employees or make counteroffers to new recruits. The companies also agreed to notify one another when making an offer to a competitor’s employee. The DOJ lawsuit was settled with no fines imposed on the alleged co-conspirators.
In 2016, the DOJ and Federal Trade Commission upped the ante, issuing joint guidance that warned human resource professionals of the “severe consequences” of violating antitrust laws. The guidance put employers on notice that the DOJ could prosecute them criminally for no-poaching and wage-fixing agreements. Under the Sherman Antitrust Act, violations are punishable by fines of up to $100 million and up to 10 years in prison.
The DOJ made good on that warning in December 2020 and January 2021, bringing its first-ever criminal indictments for alleged anticompetitive conduct in labor markets. Neeraj Jindal, former owner of a healthcare staffing company, was charged with conspiring to fix the wages of physical therapists and their assistants. Surgical Care Affiliates and SCAI Holdings were charged with conspiring with other outpatient medical care companies not to hire each other’s senior-level employees.
States Are Also Taking Action Against Employers
The outcome of these cases reflects the difficulty of winning antitrust cases. After a series of losses, the DOJ voluntarily dismissed its case against Surgical Care Affiliates with prejudice in December 2023. Jindal was found not guilty of wage-fixing but convicted of obstructing an FTC investigation. He received a sentence of probation.
Nevertheless, the DOJ has not walked back its intent to criminally prosecute anticompetitive practices in labor markets and remains “very focused on labor-related issues,” including wages and no-poaching agreements.
State attorneys general are also taking action to protect workers. In 2020, Illinois Attorney General Kwame Raoul filed a complaint against three staffing agencies alleging unlawful no-poaching and wage-fixing agreements. The lawsuit also alleged that their mutual client served as an intermediary to enforce the agreements. In January 2024, the Illinois Supreme Court held that the state’s antitrust law encompasses labor markets. The client agreed to pay $1.2 million to settle the suit, and the case against the staffing agencies is now proceeding in the Circuit Court of Cook County.
Employers Should Be Aware of the Risk
The Sherman Antitrust Act also creates a private right of action, allowing individuals to file suit against employers for no-poaching and wage-fixing agreements. These civil actions have a lower burden of proof than criminal proceedings, and successful plaintiffs can win treble damages.
Employers should ensure that their human resources departments and other individuals involved in hiring and retaining employees understand antitrust risks. Legal teams should evaluate how the company sets wages, salaries, and employment terms and should review employment agreements. Agreements with partners, suppliers, staffing agencies, franchisees, and other third parties should be scrutinized. Employers should also be vigilant about directly or indirectly sharing information about employment practices.
Federal and state regulators have made it clear that no-poaching and wage-fixing agreements will not be tolerated. Individual plaintiffs are also bringing actions against employers who engage in anticompetitive practices. Employers should be aware of the risk and take action to reduce their potential exposure.
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