Antitrust and employment in the oil patch
In October 2016, the Department of Justice's (DOJ) Antitrust Division and the Federal Trade Commission (FTC) issued Antitrust Guidance for Human Resource Professionals.
Surprising as that was to antitrust lawyers, antitrust enforcers were also surprised. Mainly at how commonplace 'no poaching' agreements and 'wage fixing' are. Indeed, Makan Delrahim, the current Assistant Attorney General, remarked: 'I've been shocked at how many of these there are, but they're real'.
But long before the recent emphasis by enforcers on antitrust scrutiny of employment practices, companies in the oil and gas sector were the target of lawsuits and investigations into their alleged employment practices. The lessons from those experiences are particularly relevant today, given the renewed focus by the antitrust enforcers on employment practices and the raft of private litigation that has followed.
Todd v Exxon
Roberta Todd was a Wharton MBA who began working from Exxon in 1981 as an auditor.
According to Todd, the defendants did this through 'periodically conducted surveys comparing past and current . . . salary information and . . . regular meetings at which current and future salary budgets were discussed'.
Despite the detailed description of the information exchange, the district court treated Todd's complaint sceptically. It was unpersuaded that Todd had met threshold requirements to plead a claim under the Sherman Act. First, the court found that Todd failed to allege a relevant market. Todd's proposed class covered all 'nonunion, managerial, professional, and technical employees'.
Todd appealed. Then Judge Sonia Sotomayor wrote an opinion for the Second Circuit reversing the district court's decision.
Unlike the district court, which had treated Todd's information exchange-based claim sceptically, the Second Circuit recognised that information exchanges, although not per se illegal, can violate the Sherman Act if certain conditions are met.
The court had little trouble in concluding that the alleged market structure made it susceptible to coordination among the defendants. It noted that Todd had alleged that the defendants, between them, employed somewhere between 80 to 90 per cent of the proposed class – and even though there were differences among the jobs covered by the proposed class, the nature of the information exchange and standardisation of that information to allow for comparison of similar positions across companies made coordination possible.
The Second Circuit's reversal of the district court's decision dismissing Todd's complaint was, in some ways, only the beginning of the story. Shortly after, several similar cases were filed and they were consolidated with Todd v Exxon in a multi-district litigation in federal court in New Jersey.
For example, in denying class certification, the district court noted that denying certification did not create a risk of 'inconsistent or varying adjudications with respect to individual class members that would establish incompatible standards of conduct for the party opposing the class', because in its view, if an individual plaintiff in a particular job class prevailed at trial, while another individual plaintiff in another job class did not, relief could be tailored to job classes that had prevailed. As the court explained:
If a geologist succeeded in a lawsuit . . . and was granted injunctive relief, that relief could be fashioned to prohibit Defendant's sharing of information concerning geologists only. At the same time, a labor attorney, for example, might fail in an identical claim, so that Defendants would be able to continue sharing information concerning labor attorneys.
Likewise, in determining whether to certify a class seeking injunctive relief, the district court concluded that the individualised issues, raised by the many different job categories included within the proposed class precluded a finding of 'cohesiveness' necessary for certification.
The defendants' summary judgment motion also returned to a number of arguments that had been rejected at the motion-to-dismiss stage. Principally, the defendants argued that the plaintiffs couldn't prove that 'the relevant product market is limited to oil and petrochemical industry employers or that [the plaintiffs] lack substitutable job opportunities outside of those employers'.
Verdin et al v R&B Falcon Drilling USA, Inc et al
In another early case, Verdin v R&B Falcon Drilling USA, Inc, companies in the oil and gas sector were accused of wage fixing. A proposed class of offshore drilling workers there sued 22 drilling companies accusing them of violating section 1 by meeting to 'set, stabilise, maintain or limit the wages and benefits paid to offshore drilling employees'.
Aside from the alleged conduct, the case is also notable for another reason. Discovery revealed that at least one of the defendants was concerned about antitrust risk due to its participation in wage and benefit surveys. That company's general counsel wrote a memorandum regarding the antitrust risks associated with participating in such surveys. His memo was later shared with other companies participating in the survey – all a number of years before the litigation began.
Verdin was much a shorter affair than Todd v Exxon. It took just over a year for the parties to reach a settlement.
What this means today
The FTC and DOJ are both actively looking for antitrust violations related to employment practices. Investigations often start when parties propose a merger and the DOJ or FTC uncovers the agreement while reviewing documents submitted by the merging parties.
While the DOJ's focus has been traditionally on 'naked restraints', private plaintiffs are now challenging ancillary agreements. For example, employees of McDonald's franchises filed a class action challenging provisions in McDonald's franchise agreements that prevented franchisees from hiring each other's employees.
But ancillary restrictions on hiring are not just found in franchise agreements, they are common in joint venture agreements, agreements with consultants and other places. Counsel scrutinising such agreements should be mindful that although often legal, there is now a greater risk that such agreements will be challenged. And, of course, companies need to do more than just ensure that new agreements don't contain such terms (or that any restrictions truly are ancillary and narrowly tailored), they need to ensure that old agreements do not violate antitrust law. That is especially so given the DOJ's position that agreements entered into before the guidelines, but that remain in force after will be potentially be subject to criminal prosecution.
Finally, companies need to ensure that their human resources personnel are aware of the antitrust risks these kinds of agreements and programmes like information exchanges can pose. Companies should also ensure that when they do participate in things such as information exchanges, or their human resources professionals participate in trade associations or attend industry conferences, they are familiar with best practices for interacting with competitors. Given that enforcers and the plaintiffs' bar have only recently begun focusing on these issues, many companies' compliance programmes have neglected human resources as a risk area. But as in almost all things, an ounce of prevention is better than a pound of cure.
2 Id at 4.
5 ECF No. 157 at 1, In re Compensation of Managerial, Professional and Technical Employees Antitrust Litig., MDL 1471 (DNJ)
6 Todd v Exxon Corp, 126 F Supp. 2d 321, 322 (SDNY 2000).
7 Todd v Exxon Corp, 275 F3d 191, 196 (2d Cir. 2001).
10 Todd, 126 F Supp. 2d 321 at 323.
11 Id at 325.
14 Id at 327.
18 Id at 202.
20 Id at 204–05.
21 Id at 205.
22 Id at 198–99.
23 Id at 207, 211,
24 Id at 209–10.
25 Id at 212–13.
26 Id at 213.
27 In re Compensation of Managerial, Professional and Technical Employees Antitrust Litig., 206 F Supp. 2d 1375 (JPML 2002)
28 In re Compensation of Managerial, Professional and Technical Employees Antitrust Litig., MDL No. 1471, 2006 WL 38937, at *5 (DNJ 5 January 2006).
29 Id at *6.
30 In re Compensation of Managerial, Professional and Technical Employees Antitrust Litig., MDL No. 147, 2006 WL 3887619, at *3 (DNJ 20 August 2008).
31 ECF No. 157 at 2, In re Compensation of Managerial, Professional and Technical Employees Antitrust Litig., MDL 1471 (DNJ).
32 Stipulation to Dismiss the Appeal, In re Compensation of Managerial, Professional and Technical Employees Antitrust Litig., Case No. 08-3827 (3d Cir. 5 June 2008).
33 Thomas Catan, 'FTC Investigates Oil Firms Over Hiring, Wages,' Wall Street Journal (26 April 2010).
34 In re Santa Fe Int'l Corp., 272 F3d 705, 706-07 (5th Cir. 2001).
35 Id at 708.
36 Rosanna Ruiz, 'Offshore Firms to Settle Wage Suit for $75 Million', Houston Chronicle (9 November 2001).
37 Santa Fe Int'l, 272 F3d at 709.
38 Id at 710.
39 Id at 706.
40 LM Sixel, 'Like Price Fixing, Wage Fixing Illegal', Houston Chronicle (15 November 2001).
42 Dan Levine, 'US Judge Approves $415 mln Settlement in Tech Worker Lawsuit', Reuters (3 September 2015).
43 Leah Nylen, 'Number of no-poach agreements uncovered by DOJ “shocking,” official says', MLex (17 May 2018).
45 ECF No. 1, Deslandes v McDonald's USA, LLC et al, Case No. 17-cv-4857 (ND Ill.).
46 ECF No. 53, Deslandes v McDonald's USA, LLC et al, Case No. 17-cv-4857 (ND Ill).