Back to Basics: The fast facts of the Sherman Antitrust Act

Imagine you’re a recruiter at a medtech company, and you’re desperate for engineering talent. You thought you’d set up a booth at a job fair hosted by your local university. You’re at the event, and you’ve talked up your organization to a few engineering majors, who seem keen on your apprenticeship program. That’s when, across the room, you see a recruiter from your company’s rival, and she’s handing out free Snickers.

You try to avoid eye contact with the rival recruiter, but you end up at the coffee station together during an afternoon lull. You confirm that, yes, you’re hurting for engineering talent. The rival says her company was losing engineers to a car parts manufacturer until the companies signed a no-poach agreement. Perhaps we could do something similar?

You pause. Wasn’t there something in your training about these kinds of pacts? You say you’re not sure — that kind of decision is probably above your pay grade. As the day winds down, you pack up your company swag and head for the parking lot, swiping a Snickers from the rival’s unmanned booth on the way out. You ponder the recruiter’s question as you drive back to headquarters. 

The key antitrust law: The Sherman Act

It’s good the recruiter’s suggestion triggered your training, even if your memory proved foggy. Antitrust issues are a major concern for HR practitioners right now, according to Proskauer Partner Colin Kass, as the U.S. Department of Justice and Federal Trade Commission are “incredibly focused” on antitrust enforcement. In 2016, DOJ warned HR pros that violations of antitrust laws including no-poach and wage-fixing agreements could carry criminal penalties such as 10-year prison terms. At the beginning of last year, the agency made good on its threat and brought its first criminal charge.

There are multiple antitrust laws at play in the U.S., including the FTC Act and state laws. But the primary law HR practitioners need to heed is the Sherman Act, Kass said. The other laws generally track the Sherman Act, though they may be construed more broadly in certain circumstances. 

The Sherman Act “sets the guard rails for competition in the U.S.,” said Kass, who co-chairs his firm’s antitrust group. In essence, the Act prohibits price fixing and monopolization. It requires organizations to act independently when competing for business or employees. It makes room for some joint action — mergers and acquisitions are allowed, for instance. 

“Once you get out of that comfort zone, it’s really important to get antitrust advice because there are a lot of things you can’t do,” Kass said.

HR is on the front lines of antitrust compliance

President Benjamin Harrison signed the Sherman Act into law in 1890. Since then, the majority of antitrust cases focused “almost exclusively” on the sales and marketing sides of business, Kass said.

“But now, with the no-poaching and wage-fixing cases, they’re focusing just as much on the HR side,” Kass said. “Employers need to know that their labor practices are subject to antitrust laws just as much as their sales practices.”

HR is on the front lines of antitrust compliance. “HR professionals often are in the best position to ensure that their companies’ hiring practices comply with the antitrust laws,” DOJ says in guidance. “In particular, HR professionals can implement safeguards to prevent inappropriate discussions or agreements with other firms seeking to hire the same employees.” 

HR pros’ primary interaction with the Act falls under Section One, which prohibits agreements among competitors. “It is unlawful for competitors to expressly or implicitly agree not to compete with one another, even if they are motivated by a desire to reduce costs,” DOJ says in guidance. 

The agency outlines a few antitrust “red flags” HR can watch for in employment agreements. They include:

• Agreements with another company about salaries, benefits or other terms of employment.
• Agreements “with another company to refuse to solicit or hire that other company’s employees.”
• Statements to competitors “that you should not compete too aggressively for employees.”

DOJ also warns HR practitioners against exchanging company-specific information regarding employee compensation or discussing such topics with colleagues at other companies.

Look out for antitrust myths

Organizations sometimes fall prey to certain myths about antitrust laws, Kass said. He noted four of the most common ones.

• Too small for trusts: Companies tell themselves that their size saves them from antitrust scrutiny. “I’m not Microsoft. I’m not Amazon. I’m too small to matter. But wage-fixing and no-poaching agreements are per se illegal, no matter your size,” Kass said.
• Different market? No problem: One organization sells gadgets. The other sells widgets. The companies believe they can collude since they don’t compete. But if they’re searching for the same type of employee — engineers or marketers or salespeople — they’re still in competition. “The Act cares just as much about the labor market as the output market,” Kass said.
• Unilateral decisions save the day: Independence is the watchword of the Sherman Act, Kass said. Companies understand this fact and declare to act unilaterally — as far as they know. “Companies are very often not writing on a clean slate,” Kass said. “A ‘unilateral policy’ was probably prompted by something. It could be an angry phone call from a competitor, and that could be used to show that a decision was not truly independent.”
• Courtesy calls play it safe: Companies may decide to give competitors they see as business partners a courtesy call to let them know they hired one of their key employees. “Be careful,” Kass warned. “Antitrust cases are built on inferences as opposed to written agreements, and communications with competitors are always fraught with ambiguity, especially when cases are litigated two or three years down the road. If you do those calls, you’re leaving your fate in the hands of the jury.”

HR practitioners should reach out for help when they navigate such scenarios, or any situation involving employment agreements. “These issues arise in so many different contexts with so many different facts,” Kass said. “You really need to get antitrust counsel involved. So much will not be as clear as it seems.”