COMMENTARY FROM COUNSEL

As labor demand continues to exceed supply, employers grapple with how to recruit and retain talent. But employers, including insurance agencies, should be mindful of where creative strategies may cross the line to illegal practices. Some agencies seem to have already crossed that line: just a few months ago, AmTrust Title Insurance Company and First Nationwide Title Agency agreed to pay a $1.25 million penalty to the state of New York for entering into “no-poach” agreements with competitors.

Now that I have your attention—what are these so-called no-poach agreements? They are mutual agreements among competitors not to solicit, recruit, or hire each other’s employees. In the same vein, wage-fixing agreements are agreements among competitors about employee wages, salaries, or other compensation terms. Both of these agreements can be formal or informal, written or verbal. It is also important to note that, in this context, competitors mean competitors for employees, not necessarily competitors in products and/or services. Of course similarly qualified employees may well be in the same industry—think of your producers, customer service representatives and other valuable contributors.

By way of example, imagine your agency has lost a number of employees to another area agency. As an attempt to retain your workforce, you call up the competing agency owner and ask if they would agree to not hire any more of your employees or contractors if you agree not to hire theirs. Even if you have nothing in writing, this arrangement is a classic no-poach agreement that creates great risk for the agencies and individuals involved.

No-poach and wage-fixing agreements may violate federal and state antitrust laws, including the federal Sherman Act. When most people think about antitrust laws, they think about price fixing cartels or bid rigging – conduct involving products or services. But the hottest area of antitrust enforcement at present involves employees. Enforcement can take the form of civil lawsuits brought by the Department of Justice (“DOJ”), Federal Trade Commission (“FTC”), or private parties (such as employees). As seen in recent years, the DOJ can also criminally prosecute individuals, the company, or both.

In fact, the DOJ has issued indictments in at least six cases for no-poach and wage-fixing agreements since December 2020. For example, in United States v. VDA & Hee (a case in Nevada federal court), the DOJ alleged that a healthcare staffing company and its regional manager conspired with a competitor to not poach each other’s nurses and to fix their wages. On October 17, 2022, the staffing company agreed to pay $134,000 as part of a plea agreement with the DOJ. After acquittals in two other similar cases, this is the DOJ’s first win in a criminal labor-side antitrust case.

These criminal cases do not come as a surprise considering the federal government’s recent guidance and agenda. In 2016, the DOJ and FTC issued Antitrust Guidance for Human Resources Professionals, warning for the first time that the DOJ intended to criminally prosecute companies and individuals for wage-fixing and no-poach agreements under antitrust laws. Just last March, the Treasury Department issued a report on competition in the labor market. The report continues to reaffirm the intent of the FTC and DOJ to “vigorously enforce antitrust laws in labor markets.”

What can your agency do to prevent the DOJ from knocking on your door? It is important to train your executives and Human Resources personnel on the risks involved with no-poach and wage-fixing agreements. They should understand to whom to report internally if they hear about such agreements or if competitors attempt to engage in compromising discussions. In addition, reach out to legal counsel if your agency contemplates anything that resembles no-poach or wage-fixing agreements or discussions. There may be scenarios where these actions are permissible (e.g., a no-poach agreement as part of a joint venture), but they need to be carefully managed.

Finally, consider more traditional restrictive covenant agreements between the agency and the employee or contractor that contain employment restrictions. These “vertical” agreements could restrict the employee from working for a competitor during and after employment for a limited period of time (a “non-compete”), and/or restrict the employee from soliciting certain customers or employees post termination (a “non-solicit”). However, like with all new employment strategies, you should confer with legal counsel to understand the legal parameters of this dynamic area of law before implementing the agreements.