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Recent FTC Settlement Confirms Enforcement Priority to Protect Employees From Employer Collusion

Client Alert

Authors: Barbara T. Sicalides, A. Christopher Young and Benjamin J. Eichel

8/02/2018
Recent FTC Settlement Confirms Enforcement Priority to Protect Employees From Employer Collusion

On July 31, the FTC published its settlement with Therapy Source, LLC; its owner, Sheria Yarbray; and Neeraj Jindal, the former owner of a competing staffing company — Integrity Home Therapy (collectively, the respondents). The complaint and accompanying analysis to aid public comment allege that the respondents violated section 5 of the FTC Act by agreeing to reduce pay rates for therapists and inviting other companies to do the same.

This action is part of a broader effort by the FTC, DOJ and state attorneys general to crack down on companies entering into nonsolicitation and wage-fixing agreements1 and is consistent with the joint DOJ and FTC HR Guidelines issued in October 2016. The HR Guidelines provided guidance on how the agencies would apply the antitrust laws to job markets and described the DOJ’s intention that, going forward, it would criminally prosecute companies and individuals that entered into naked wage-fixing agreements and no-poaching agreements, which prohibit companies from recruiting or hiring each other’s employees.

In the Therapy Source matter, the firms investigated were competing providers of a variety of therapy services to treat patients under contracts with home health agencies. The respondents also competed against each other for contracts with, and to employ, therapists, who choose among therapist staffing companies based on pay rate, volume of patient referrals, and location of patients. According to the complaint, Integrity Home Therapy initiated the conspiracy in response to a home health agency’s plan to lower its payments to Integrity. Specifically, the complaint alleges that Integrity was concerned that its margins would be eroded and, through an intermediary, approached Your Therapy Source to find out how much it was paying therapists, whether home health agencies had lowered their payments, and whether Your Therapy Source planned to lower what it paid to therapists. The two companies then agreed, through a series of text messages, that they would reduce their rates for therapists, thereby reducing pressure on their margins. Integrity and Your Therapy Source also attempted to recruit other competitors to join the conspiracy, sending similar text messages to four other competitors.

In their HR Guidelines, the agencies stated clearly that firms that compete to hire or retain employees are competitors in the employment marketplace, regardless of whether they compete in their respective downstream products or services markets. Accordingly, the same antitrust principles apply, and it is “unlawful for competitors [in the job marketplace] to expressly or implicitly agree not to compete with one another, even if they are motivated by a desire to reduce costs.” The HR Guidelines counseled firms and their HR professionals to take care not to communicate a company’s hiring terms or policies to other companies competing to hire the same types of employees. The HR Guidelines also squarely condemned conduct like that alleged in Therapy Source — agreements among companies on terms of compensation and discussing a range or level of salary or other compensation terms with other companies.

In the proposed consent decree, the respondents agreed to end any arrangements relating to fixing wages, all exchanges of information relating to wages, and invitations to others to agree on wages. Additionally, the respondents agreed to report regularly on their efforts to comply with the settlement.

Although the HR Guidelines make clear that the type of information sharing and the agreement reached in Therapy Source are not permitted, they do not ban appropriate restraints on wages or information sharing in the context of integrated joint ventures so long as they are necessary to achieve some procompetitive benefit of the collaboration. Antitrust counseling plays a key role in the formation and proper operation of any competitor collaboration by identifying and addressing risk areas, including those related to management of the joint venture, employment and vendor relationships. Similarly, benchmarking of employment data, when properly structured, can fall within a permitted “safety zone”.2

Given the increased enforcement in this area and private litigation challenging nonsolicitation agreements, employers should carefully consider the need for such agreements and any informal or formal communications regarding wages and seek appropriate antitrust advice to minimize the risks inherent in the area.

Endnotes

1 For more information on these agreements, see our recent client alerts: “Antitrust Division Threatens Criminal Prosecution for Employment Practices: Antitrust Agencies Issue Joint Guidance on Employment Restrictions,” “No-Poach Agreements Targeted by Plaintiffs, Enforcement Agencies and Senators” and “Fast-Food Chains Agree to End Franchise No-Poach Restrictions.”

2 The FTC and DOJ benchmarking safety zone requirements include: (1) an independent third party manages the program; (2) the information provided is more than three months old; and (3) there are at least five employers providing data and no employer represents more than 25 percent of any particular statistic.

The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.

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