Antitrust Attacks on “No-Raiding” Contracts and Sharing of Wage Information
By Ted Olsen
Clients frequently ask us for our legal opinions as to whether they may lawfully enter into no-raiding contracts, prohibiting them from hiring or soliciting other businesses' employees. Workers lose employment opportunities as a result of such agreements, and employers therefore sometimes face antitrust law claims.
Likewise, potential antitrust liability may arise when employers exchange pay scale and benefit information. When such data is swapped, the participating employers' pay scales and benefits often converge. Indeed, pay and benefit conformity could be the very result of competition. On the other hand, the convergence of the participating employers' pay scales and benefits may indicate just the opposite of competition - that the employers have implicitly entered into a price-fixing agreement, to suppress employees' earnings and benefits.
Recent litigation involving employees in the technology and health care industries reveals that employers are facing greater antitrust law exposure than they have in the past.
No-Raiding Agreements. As a general rule, the legality or illegality of a no-raiding agreement depends on the effect of the pact on the covered employees' "market" opportunities. For instance, if - despite such an agreement - employees covered by the agreement will still have a broad range of employment opportunities available to them in the marketplace, the contract will probably not violate the antitrust laws because no substantial restraint of trade has occurred. When courts assess the market opportunities available to the employees, they will consider such factors as the employees' occupations, the transferability of their skills to other occupations, the availability of positions for which they are qualified with other employers in the region, and the like. On the other hand, if the businesses that are party to the agreement dominate the covered employees' "market," then such an agreement will likely violate the antitrust laws.
Up until now, most no raiding agreements between employers have not substantially impaired their workers' market opportunities; hence, the agreements have not been unlawful. Recently, however, the Justice Department's Antitrust Division proposed that the U.S. District Court for the District of Columbia approve a consent decree prohibiting six well-known technology companies from entering into mutual non-solicitation agreements with regard to their employees. United States v. Adobe Systems Inc., No. 1:10-cv-01629 (D.D.C. Sept. 24, 2010). The six businesses - Adobe Systems Inc., Apple Inc., Google Inc., Intel Corp., Intuit Inc., and Pixar - had signed non-solicitation agreements attacked by the Justice Department as per se violations of the Sherman Act.
Along with the proposed consent decree, the Justice Department filed a complaint alleging that the agreements "are facially anticompetitive because they . . . substantially diminished competition to the detriment of the affected employees who were likely deprived of competitively important information and access to better job opportunities."
Sharing Wage Information. As noted above, the mere exchange of pay and benefit information between businesses, by itself, is not unlawful. (And there is nothing illegal about referring to wage survey data available to the public.) The major question is whether the businesses agreed amongst themselves to fix prices, i.e., not to provide more generous pay and benefits to employees than that given by the others to their respective workers.
The U.S. District Court for the Northern District of New York recently gave preliminary approval to a consent decree that, among other things, provides $4.5 million to a class of registered nurses who claimed that five hospitals in the Albany-Schenectady-Troy, New York area had conspired to fix their wages, as proven in part by their exchange of wage information, in violation of the antitrust laws. Fleischman v. Albany Med. Center, Civil Action No. 06-cv-0765 -TJM-DRH (N.D.N.Y. Oct. 12, 2010).
Likewise, in Johnson v. Arizona Hosp. & Healthcare Ass'n, No. CV 07-1292-PHX-SRB (D. Ariz. Sept. 27, 2010), Judge Susan Bolton of the District of Arizona approved, after three years of litigation, a settlement proposed by the parties, providing $22.5 million dollars to a class of per diem temporary and traveler nurses, in a case against a group of Arizona hospitals.
Suits similar to Fleischman and Johnson reportedly have been filed against hospitals in Chicago, Detroit, San Antonio and Memphis. Employers in the health care industry should be particularly wary of exchanging pay and benefit information, and of other actions that could be interpreted as unlawful price-fixing, as unions seem to be encouraging such litigation.
Sherman & Howard has prepared this advisory to provide general information on recent legal developments that may be of interest. This advisory does not provide legal advice for any specific situation. This does not create an attorney-client relationship between any reader and the Firm. If you want legal advice on a specific situation, you must speak with one of our lawyers and reach an express agreement for legal representation.
©2010 Sherman & Howard L.L.C. November 3, 2010