LawFlash

FTC Brings First Wage-Fixing Enforcement Action Following Joint DOJ-FTC Human Resources Guidance

August 13, 2018

A series of significant recent developments highlight the continuing enforcement by the US Department of Justice Antitrust Division, Federal Trade Commission, and state attorneys general regarding no-poaching and wage-fixing agreements, with more enforcement actions and private lawsuits expected in the near future.

Recent FTC Wage-Fixing Enforcement Action

On July 31, 2018, the Federal Trade Commission (FTC) announced a proposed settlement with a therapist staffing company accused of colluding with other therapist staffing companies to set compensation paid to physical therapists at a reduced amount.[1] The FTC alleged that these companies colluded to fix wages for the purpose of preventing individual therapists from seeking higher compensation at other therapist staffing companies, with the ultimate effect of increasing the companies’ profits.[2]

This enforcement action is the first by the FTC in connection with a wage-fixing agreement following its 2016 joint guidance with the US Department of Justice Antitrust Division (DOJ), summarized below, in which both federal agencies announced that they plan to bring enforcement actions for no-poaching and wage-fixing agreements.

The DOJ and FTC define a wage-fixing agreement as any express or implied agreement or understanding among competitors “about employee salary or other terms of compensation, either at a specific level or within a range.”[3] Significantly, in the wage-fixing space, the relevant market is all firms that compete to attract or retain employees or independent contractors, regardless of industry.[4]

The proposed consent order prohibits the therapist staffing company from agreeing to fix wages or sharing compensation information with other firms, requires the submission of periodic compliance reports to the FTC, and authorizes the FTC to inspect the company premises and conduct interviews to determine compliance.[5] Notably, the proposed consent order includes no restitution or notice to the victims of the wage-fixing scheme, nor does it include any admission of facts or liability by the therapist staffing company.[6] Due to the structure of the proposed consent order, FTC Commissioner Rohit Chopra issued a statement requesting public comment on the content and structure of wage-fixing agreement consent orders going forward.[7] After a 30-day public comment period, the FTC will decide whether to finalize the proposed consent order.[8]

Joint DOJ and FTC Guidance Issued in 2016

The FTC’s enforcement action reflects an ongoing effort by the DOJ and FTC to prosecute no-poaching and wage-fixing agreements following the agencies’ joint issuance of their Antitrust Guidance for Human Resources Professionals (Antitrust HR Guidance) in October 2016.[9] The DOJ and FTC clarified in the Antitrust HR Guidance that naked wage-fixing and no-poaching agreements would be treated as per se antitrust violations, and the DOJ further indicated for the first time that it intended to pursue criminal penalties for naked violations.[10] In a series of LawFlashes, we have previously commented on and summarized the antitrust issues and criminal and civil implications of the Antitrust HR Guidance, both within the United States and internationally.[11]

Other Recent State Enforcement Efforts

Besides the recent DOJ and FTC enforcement actions, state attorneys general have initiated investigations and enforcement actions in this area. To date, the firms targeted by these state attorneys general have been fast-food franchises that use no-poaching agreements to prevent employees from moving to or transferring between stores within the same franchise.

For example, on July 9, 2018, Massachusetts Attorney General Maura Healey, on behalf of the attorneys general of 10 states and the District of Columbia, announced an investigation of eight major fast-food franchises for their use of no-poaching agreements.[12] According to these attorneys general, 80% of major fast-food franchisors include no-poaching provisions in their franchise agreements that prohibit an employee of the franchise from moving to a different store within the same franchise.[13] Pursuant to the investigation, fast-food franchises have been asked to provide information and documents to state regulators regarding topics such as the number and categories of employees subject to the agreements, the temporal and geographic scope of the agreements, and the business reasons for why such agreements are necessary.[14]

A few days later, on July 12, 2018, Washington Attorney General Bob Ferguson announced a settlement with seven major fast-food franchises that agreed to stop their use of no-poaching agreements for all their employees nationwide, affecting more than 25,000 stores.[15] These fast-food companies agreed to waive the enforcement of no-poaching provisions in preexisting agreements and to remove no-poaching provisions from any future contracts.[16] We expect that state attorneys general will continue to pursue no-poaching violations aggressively.

Congressional Focus

No-poaching agreements have also drawn scrutiny from some members of Congress. For example, Senators Cory Booker (D-NJ) and Elizabeth Warren (D-MA) recently issued letters to various franchise CEOs expressing concern about the use of no-poaching agreements.[17] These letters came on the heels of a bill that Senators Booker and Warren introduced in the Senate earlier this year to prohibit the use of no-poaching agreements.[18]

Private Class Actions and Cases

Finally, following the state attorneys general investigations, some employees have filed private class action or individual suits against employers, seeking treble damages for alleged antitrust violations. For example, following Washington’s settlement with fast-food franchises, former employees brought class action complaints against several of the franchises alleging antitrust and unfair competition claims.[19] The complaints allege that each franchise engaged in a longstanding conspiracy to reduce employee wages by agreeing not to solicit employees from other stores within the same franchise.[20]

Based on this recent activity, we anticipate that there will be a wave of private actions in the near future regarding no-poaching and wage-fixing agreements as government regulators begin to announce investigations and enforcement actions.

How We Can Help

Morgan Lewis has assisted companies in the following areas to assess, address, and mitigate antitrust risk.

  • Identifying Post–October 2016 Contracts and Conduct: We have assisted in the review and assessment of any no-poaching or wage-fixing agreements after October 2016, which may subject employers and individuals to criminal or civil penalties following the Antitrust HR Guidance. The federal antitrust authorities are particularly focused on conduct following the October 2016 enforcement guidance.
  • Assessing International Issues and Jurisdictions: For companies operating outside the United States, we advise on emerging prohibitions in other jurisdictions, such as Hong Kong, Japan, and countries in Europe.[21]
  • Policy Contract Review and Guidance: We regularly review and provide guidance on policies and contract language, including steps to avoid scrutiny under the per se unlawful standard. We have reviewed and recommended modification of policies and code of conduct where appropriate.
  • Mergers and Acquisitions: Given the heightened risk of enforcement and litigation, companies should be particularly sensitive to appropriate due diligence to identify and address any legacy contract terms or prior conduct that may raise liability questions following the merger or acquisition. Our due diligence team regularly assists in this analysis.
  • Antitrust Compliance Training: We have assisted and provided compliance and training programs to ensure that human resources professionals and others are familiar with antitrust issues so as to identify and mitigate potential problems and assess any preexisting liability risks. The training has extended, when appropriate, to company executives and in-house counsel to ensure key individuals in the company are aware of the legal issues and risks.
  • Mitigation Efforts If Needed: If conduct presenting legal risks is detected, it is important to consult with experienced antitrust counsel to consider appropriate steps. For example, if criminal conduct is uncovered, it may be warranted to consider the DOJ Leniency Program. Also, consider the risk of federal and state enforcement actions along with the potential for private litigation. We have assisted companies that have been subject to investigation by enforcers or private litigation.
  • Information Sharing Risks: Companies should be cautious about sharing any compensation-related information with anyone outside of the company. This applies to any type of employee compensation, including benefits and perks such as fitness or transit subsidies.[22] The DOJ and FTC have clarified that even the inadvertent sharing of compensation information with friends or business contacts can trigger antitrust consequences, as the sharing can be used as evidence of an implicit arrangement to violate antitrust laws.[23]

Contacts

If you have any questions about the Antitrust HR Guidance, Morgan Lewis has a task force of experienced antitrust and labor and employment counsel who have been assisting companies and organizations with investigations by government regulators involving no-poaching and wage-fixing issues. For more information on these issues, please contact any of the following Morgan Lewis lawyers:

Silicon Valley
Mark L. Krotoski

Boston
Siobhan E. Mee
Daniel S. Savrin

Brussels
Christina Renner
Izzet Sinan

Frankfurt
Michael Masling

London
Owen Hammond
Frances Murphy
Omar Shah

Los Angeles
Debra L. Fischer

New York
Stacey Anne Mahoney

Philadelphia
R. Brendan Fee
Jeffrey A. Sturgeon
Larry L. Turner

San Francisco
Brian Rocca
Sujal J. Shah
Colin West

Shanghai
Dora Wang

Washington, DC
Ryan Kantor
Willard K. Tom
Y. Frank Ren



[1] Press Release, FTC, Therapist Staffing Company and Two Owners Settle Charges That They Colluded on Rates Paid to Physical Therapists in Dallas/Fort Worth Area (July 31, 2018).

[2] See Complaint, In the Matter of Your Therapy Source, LLC et al., FTC No. 171-0134.

[3] Antitrust HR Guidance for Human Resources Professionals, at 3 (Oct. 2016).

[4] Id. at 2.

[5] See Decision and Order, In the Matter of Your Therapy Source, LLC, FTC No. 131-0134.

[6] See Public Statement, Rohit Chopra, FTC Comm’r (July 31, 2018).

[7] Id.

[8] See supra note 1.

[9] Antitrust HR Guidance, at 1.

[10] Id. at 3-4.

[11] Morgan Lewis, LawFlash: DOJ’s First Enforcement Action for “No-Poaching” Agreements Since the Landmark Antitrust Guidance for HR Professionals (Apr. 12, 2018); Morgan Lewis, LawFlash: DOJ Antitrust Division Announces Imminent Criminal Prosecution for “No Poaching” Agreements (Feb. 6, 2018); see also Morgan Lewis, LawFlash: Are Your Employment Practices in Breach of Antitrust Law? (Mar. 30, 2018); Morgan Lewis, LawFlash: FTC and DOJ Issue Antitrust Guidance for HR Professionals (Nov. 1, 2016).

[12] Press Release, AG Healey Leads Multistate Investigation of Worker No-Poach Agreements at National Fast Food Franchises (July 9, 2018).

[13] Id.

[14] See id.

[15] Press Release, AG Ferguson Announces Fast-Food Chains Will End Restrictions on Low-Wage Workers Nationwide (July 12, 2018).

[16] Id.

[17] Letter from Sens. Cory Booker and Elizabeth Warren to Various CEOs (July 12, 2018).

[18] End Employer Collusion Act, S. 2480, 115th Cong., 2d Sess. (2018).

[19] See Harris v. CJ Star, LLC et al., No. 18-247 (E.D. Wash. filed Aug. 3, 2018); Richmond v. Bergey Pullman, Inc. et al., No. 18-246 (E.D. Wash. filed Aug. 3, 2018); Stigar v. Dough Dough Inc. et al., No. 18-244 (E.D. Wash. filed Aug. 3, 2018); Yi v. SK Bakeries, LLC, No. 18-5627 (W.D. Wash. filed Aug. 3, 2018).

[20] See, e.g., Complaint, Harris, No. 18-247 (E.D. Wash. filed Aug. 3, 2018) (ECF No. 1), ¶¶ 10-16.

[21] See generally LawFlash: DOJ Antitrust Division Announces Imminent Criminal Prosecution for “No Poaching” Agreements (Feb 6, 2018).

[22] Antitrust HR Guidance, at 8-9.

[23] Id. at 4-5.