The employment law landscape in the United States continues to evolve at a rapid pace. The last year was no exception, with key developments impacting the adjudication of employee disputes, employee non-solicitation covenants, and wage fixing agreements among employers.
US Supreme Court Continues To Enforce Employment Arbitration Agreements
In contrast to the vast majority of countries, employers and employees in the United States may agree to resolve employment disputes in private arbitration. While there are pros and cons associated with arbitration in comparison to litigation in a public court, many employers seek to arbitrate employment disputes to benefit from the relative privacy of the proceedings and the comparatively lower discovery burdens on the employer.
The United States Supreme Court has consistently upheld such private arbitration procedures and this trend continued with the highly anticipated Epic Systems Corp. v. Lewis decision, where the Court held that class action waivers in arbitration agreements are fully enforceable. 138 S. Ct. 1612, 1632 (2018). With the opinion, the Supreme Court resolved a circuit court split in favor of class and collective action waivers. Employers may now require workers to arbitrate claims on an individual rather than group basis.
While the Supreme Court had previously upheld class action waivers in the context of consumer arbitration agreements in its AT&T Mobility v. Concepcion decision, the National Labor Relations Board (NLRB) took the opposite tack in the employment context with its 2012 D.R. Horton decision. See AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011); D.R. Horton, Inc., 357 N.L.R.B. No. 184 (2012). In D.R. Horton, the NLRB held that class action waivers in the employment context improperly interfered with employees' rights to engage in concerted activity under Section 7 of the National Labor Relations Act. Under D.R. Horton, the NLRB held that employment arbitration agreements containing class action waivers were unenforceable, notwithstanding the strong congressional preference for arbitration under the Federal Arbitration Act (FAA). After the NLRB's 2012 decision, a split emerged among the US circuit courts of appeals.
In Epic Systems, the Supreme Court rejected the position that arbitration agreements containing class action waivers are not enforceable. The Supreme Court wrote that through the FAA, "Congress has instructed federal courts to enforce arbitration agreements according to their terms–including terms providing for individualized proceedings." Epic Systems, 138 S. Ct. at 1619. The Court also held that the FAA's "saving clause," which states that arbitration agreements are enforceable, save "upon such grounds as exist at law or in equity for the revocation of any contract," requires no different result. Id. at 1622.
Since Epic Systems was issued, several courts have applied its ruling and required various types of employment claims to be arbitrated, including wage and hour claims under the Fair Labor Standards Act.
The Supreme Court's approval of arbitration was on display again when a unanimous Court held that an arbitration agreement can delegate to the arbitrator the authority to decide whether a particular dispute is arbitrable. Henry Schein, et al. v Archer & White Sales, Inc., 139 S. Ct. 524, 528 (2019).
It is now clear that arbitration agreements with class action waivers are enforceable throughout the United States. Companies with existing arbitration agreements that contain class action waivers can feel confident that the agreements are enforceable, notwithstanding any state law contractual challenges such as duress or unconscionability.
Companies that previously implemented arbitration agreements on a limited jurisdictional basis may now expand their use of agreements on a nationwide basis. Companies without arbitration agreements and class action waivers should implement new agreements with their employees.
US Federal Antitrust Agencies Bring First Enforcement Actions Since the Issuance of Antitrust Guidance for HR Professionals
The Department of Justice Antitrust Division (DOJ) and Federal Trade Commission (FTC) jointly enforce US antitrust laws. On October 20, 2016 the FTC and DOJ issued the Antitrust Guidance for Human Resources Professionals ("Antitrust Guidance") and other individuals involved in hiring and compensation decisions to prevent antitrust violations and report potentially unlawful activity to the DOJ.
In 2018, the DOJ brought its first enforcement action for no-poaching agreements and the FTC brought its first wage-fixing enforcement action following the agencies' issuances of the Antitrust Guidance. Because of the agencies' increasing focus on prosecuting anti-competition agreements, employers should be diligent in ensuring they comply with antitrust laws.
Agreements between companies to fix salaries or benefits of employees, either at a specific level or within a range (i.e., wage-fixing agreements), and agreements between companies not to cold call, solicit, recruit, or hire each others' employees (i.e., no poaching agreements) can constitute unlawful antitrust violations under US law as they may restrict competition among companies. While the DOJ and FTC have historically investigated and challenged these anti-competitive agreements as violations of federal antitrust law, they were usually addressed through civil enforcement actions prior to the issuance of the Antitrust Guidance.
For example, in 2010, the DOJ filed civil lawsuits against several technology companies that entered into no-poaching agreements with competitors, which ended by entering into settlements preventing the companies from contracting with employees.
However, the agencies signaled a more aggressive stance in issuing the Antitrust Guidance by expressly stating their intent to criminally investigate and prosecute naked wage-fixing or no-poaching agreements, whether entered into directly or through a third-party intermediary, that are unrelated or unnecessary to a larger, legitimate collaboration between the employers. For the first time, the agencies threatened criminal, felony charges against companies, HR professionals, and hiring managers. In a criminal Sherman Act case, a company may be subject to fine of up to $100 million, while individual HR professionals may be subject to fines of up to $1 million and up to 10 years of imprisonment. Accordingly, being a party to a criminal investigation by the antitrust agencies can have monumental reputational and monetary repercussions.
Since issuing the Antitrust Guidance, the DOJ has continued to publicly acknowledge that active criminal investigations involving no-poaching agreements are underway. In line with these announcements, the DOJ declared its first civil enforcement action on April 3, 2018 by filing a complaint in federal court in Washington, DC against two of the world's largest rail equipment suppliers for allegedly engaging in illegal no-poaching agreements with each other and a third rail equipment supplier. Although the DOJ had warned of criminal prosecution, the agency instead instituted a civil enforcement action in this case because the underlying activity and agreements predated the issuance of the Antitrust Guidance in October 2016. While the DOJ chose not to pursue criminal penalties in this specific case, the agency appears prepared to do so where a no-poach agreement is entered into after October 2016. Companies should be extra vigilant in ensuring their agreements entered into after October 2016 do not have the effect of unlawfully hindering competition. This vigilance should include a careful review of all employee agreements that contain "no poaching" provisions.
The FTC first relied on the Antitrust Guidance in a complaint challenging wage fixing agreements. The complaint accused a therapist staffing services company, its owner, and the former owner of a competing staffing company of colluding with other competitors on reduced pay rates for physical therapists. According to the complaint, the two owners had agreed to lower their therapist pay rates to the same level and also invited other competitors to lower their rates to keep therapists from switching to staffing companies that paid more. In July 2018 the FTC announced a settlement and consent order in which the staffing company would be barred from colluding with competitors on compensation paid to employees or independent contractors. The parties were also barred from contracting with any person to lower, fix, maintain, or stabilize the compensation they or the other person pays in competing with each other for therapists, employees, and independent contractors. The parties were further barred from exchanging information with competitors related to compensation of employees and independent contractors. As indicated by the FTC's enforcement action, the antitrust agencies are continuing to pay close attention to wage-fixing agreements.
1. Conduct compliance training for HR professionals and other individuals involved in hiring and recruiting to identify and avoid any potential wage-fixing or no poaching agreements.
2. Review any agreements that may restrict the hiring of employees from competitors to ensure they do not violate antitrust laws.
3. Only obtain industry reports or compensation studies from neutral third-party survey companies that aggregate historical data from multiple companies and regions.
4. Review existing employee agreements to ensure any "no poaching" restrictions are reasonable and aligned with current law.
Andrew J Boling and William J Dugan are partners in the Employment and Compensation practice group at Baker & McKenzie LLP, in Chicago, Illinois. They represent corporate employers in a variety of domestic and cross-border employment disputes and investigations and act as trusted strategic advisors for multinational companies regarding their international and domestic labor and employment issues in the United States and abroad.