Human resource professionals typically concentrate on employment law – and there have been plenty of new developments in traditional employment law areas, such as the injunction against the new Department of Labor overtime rule. But now, seemingly from left field, federal securities and antitrust regulators are also issuing guidance and regulations, as well as initiating enforcement actions, that impact employment activities and agreements.
Confidentiality Agreements. Certain provisions of the Dodd-Frank Act were aimed at encouraging and protecting whistleblowers. The Securities Exchange Commission recently filed complaints against two companies for the confidentiality and waiver provisions in their termination and severance agreements.1 The SEC stated that these provisions illegally “impeded” potential whistleblowers from contacting or cooperating with the SEC or other law enforcement authorities by requiring former employees to consult with the company legal department before discussing any company business, in violation of SEC Rule 21F-17.2 The SEC whistleblower program has awarded more than $100 million to whistleblowing employees, but these agreements also required employees to waive such monetary recovery in any lawsuit involving the company. In the consent orders, the SEC required the confidentiality provisions to be changed to recognize the employees’ rights to cooperate with the SEC, the Department of Justice and agency inspector generals. It also required the companies to remove the waivers of monetary award. Finally, it fined each company over $100,000. In light of these developments, HR professionals and their counsel must carefully draft severance and employment agreements to avoid these compliance issues.
Non-Competition Agreements. The Department of Treasury recently issued a report on potential adverse economic impacts of non-competition agreements in employment agreements. While non-competes are justified in many instances to protect trade secrets, and investment in client relationships and employee training, the DOT contends that non-competes are over-used and have other costs that hurt economic productivity. For example, they can lower worker turnover, inhibit wage growth, and discourage efficient allocation of workers. While the DOT report does not itself impose new regulations, it does recommend reform, and some states have taken action. The Illinois Attorney General recently filed a complaint against Jimmy John’s sandwich shops alleging that the non-competes in its employment agreements were unnecessary, as delivery personnel did not possess any trade secrets worthy of protection. Similarly, the DOT report discourages the use of non-competes in employment agreements concerning lower-level jobs, and jobs that lack access to real trade secrets or proprietary customer data.
Wage-Fixing. Surprisingly, the Federal Trade Commission and Department of Justice (Antitrust Division) issued a pamphlet last month entitled “Antitrust Guidance for Human Resource Professionals.” Among other things, the pamphlet explained that agreements among employers to fix wages violate the Sherman Act. That concern was recently underscored by the DOJ in a complaint filed against a Utah association of healthcare HR administrators, who shared information about nurse and other employee salaries. In another, the DOJ obtained a consent decree from the Arizona Hospital & Healthcare Association for adopting a uniform rate schedule for per diem and temp nurses. HR administrators participating in such associations should be trained to see the red flags of sharing wage and hiring information, and avoid charges of wage fixing.
No-poaching agreements. The FTC/DOJ guidance points out that agreements among employers not to hire away competitors’ employees are also illegal under the Sherman Act. Employers may be tempted that such agreements are a good idea to avoid “bidding wars” for the services of highly talented and creative employees; but they risk violating the Sherman Act. In the past few years, the government antitrust enforcers have obtained consent decrees and significant fines from companies like Pixar, LucasFilms, eBay and Intuit, alleging that they engaged in this type of violation.
In light of these developments, HR administrators need to review their employment agreements, termination and severance agreements, and confidentiality agreements to ensure compliance with these new requirements.
1In the Matter of Health Net, Inc., AP File No. 3-17396 (Aug. 16, 2016); In the Matter of Blue Linx Holdings, Inc., AP File No. 3-17371 (Aug. 10, 2016).
217 CFR 240.21F-17.