Reed Smith Client Alerts

A recently filed class action lawsuit serves as an important reminder that employers can face scrutiny under antitrust law through civil litigation brought by their employees, in addition to investigations and enforcement actions by federal agencies. Employers that are party to agreements regarding hiring, wage, and other employment practices with other employing entities, including even those entities within the same corporate family or structure, should carefully review the agreements with antitrust counsel to ensure compliance with antitrust and competition laws.

Authors: Courtney Bedell Averbach James A. Holt Michelle A. Mantine Sara A. Begley

Type: Client Alerts

In October 2016, the Federal Trade Commission (“FTC”) and Department of Justice (“DOJ”) Antitrust Division issued guidance for companies colluding to set industry hiring and compensation standards. Specifically, the agencies warned that employers that enter into naked no-poaching or wage-fixing agreements with each other will face criminal and civil investigation and enforcement. According to an FTC press release, “[w]orkers are entitled to the benefits of a competitive market for their services. They are harmed if companies that would ordinarily compete against each other to recruit and retain employees agree to fix wages or other terms of employment, or enter into so-called ‘no-poaching’ agreements by agreeing not to recruit each other’s employees.”1

The FTC and the DOJ are not alone in challenging employers under federal antitrust law, as demonstrated by a recent class action complaint2 filed in California state court. In that lawsuit, two current and former employees of fast food chain Carl’s Jr. brought a putative class action against Carl’s Jr. Restaurants, LLC and its parent company Carl Karcher Enterprises, LLC (“CKE”), asserting several antitrust claims and business torts. The complaint alleges that CKE and its franchisees colluded to suppress the wages of Carl’s Jr. restaurant managers through a no-hire agreement that expressly prohibits franchisees from employing or seeking to employ managers who work for other franchisees. According to public statements by CKE upper management, the business model was designed to encourage franchisee competition, including in employment practices. The plaintiffs, however, assert that the no-hire agreement prevented the company’s own franchisees from competing with each other for the best employees.

It remains to be seen whether the FTC and the DOJ, which issued their human resources guidance during the previous administration, will uphold their pledge to vigorously investigate and enforce antitrust violations in the hiring and compensation space. Nevertheless, the Carl’s Jr. lawsuit serves as a reminder that employers can face scrutiny under antitrust law through civil litigation brought by current or former employees.3

Employers that are party to agreements regarding hiring, wage, and other employment practices with other employing entities, including even those entities within the same corporate family or structure, should carefully review the agreements with antitrust counsel to ensure compliance with antitrust and competition laws.


 

  1. FTC and DOJ Release Guidance for Human Resource Professionals on How Antitrust Law Applies to Employee Hiring and Compensation, FED. TRADE COMM’N (Oct. 20, 2016), ftc.gov.
  2. Class Action Complaint, Bautista v. Carl Karcher Enters., LLC, No. BC649777 (Cal. Super. Feb. 8, 2017), available at bloomberglaw.com.
  3. A recently announced settlement further emphasizes the potential cost of antitrust lawsuits in the employment context. In 2014, animation and visual effects employees brought a class action against major Hollywood film studios, alleging that the companies conspired to fix wages via illegal anti-poaching agreements. At a March 2, 2017 hearing, a California federal judge granted preliminary approval to a $100 million settlement between the plaintiffs and last-remaining defendants the Walt Disney Company, Pixar, Lucasfilm, and Two Pic MC. DreamWorks Animation, Sony Pictures Imageworks, Sony Pictures Animation, and Fox’s Blue Sky Studios had all previously entered into multi-million dollar settlements with the class.

Client Alert 2017-083