With a green light from current and previous administrations, the DOJ is using existing law to crack down both on corporate crime and on a range of corporate activities deemed stifling to competition. In this second installment of a two-part series, attorney Michael Peregrine addresses corporate crime.
Read part one, where Peregrine unpacks novel and potentially risk-bearing developments in antitrust.
Recent aggressive antitrust enforcement activity from the DOJ warrants re-evaluating whether existing corporate compliance programs adequately address organizational and individual antitrust risk. In particular, the DOJ is focusing more acutely on wages, wage fixing, non-compete agreements and related HR issues. These developments will require substantial engagement by the full compliance committee, including the chief legal officer and chief compliance officer, both of whom are the primary corporate members of the committee.
Beyond merger enforcement
Growth and M&A-minded businesses are already well aware of the watchdog agency’s heightened scrutiny of horizontal and vertical acquisitions and expansion. However, the new enforcement activity in question introduces an entirely new focus. That is, the DOJ is taking an aggressive approach to applying both the Sherman and Clayton antitrust acts in new and novel ways.
Specifically, the DOJ is investigating a broad spectrum of individual and organizational conduct traditionally perceived to be within the realm of corporate operations. In particular, the DOJ is looking into conduct perceived to violate antitrust laws as they pertain to labor markets. This includes deep dives into “no poach” employment clauses or wage-fixing agreements.
Most businesses and their compliance teams understand the risks of antitrust actions and that violations can lead to criminal penalties. But HR departments may not regularly interact with a company’s legal and compliance departments in an antitrust context. This means businesses may find themselves facing new compliance risks in new areas amid managers unfamiliar with antitrust rules, signaling the need for compliance committees to act.
Then of additional interest to compliance committees — and nominating and governance committees — is the federal government’s renewed focus on enforcing Section 8 of the Clayton Act, along with certain other prohibitions against interlocking directorships. Note the April 4 comments of Assistant Attorney General Jonathan Kanter, chief of the DOJ’s antitrust division. In those comments, Kanter expressed the government’s expanded commitment to enforcing prohibitions against interlocking directorships involving competitors, beyond those identified through government review of mergers and acquisitions.
Outcomes remain uncertain
It is important to note that this new and aggressive application of Sherman Act criminal provisions pertaining to how companies engage with their workers began in the latter stages of the Obama Administration and continued under the Trump Administration. However, given a high-profile focus on the promotion of competition in the American economy, the trend is accelerating in the Biden Administration.
Still, the success of such activity remains uncertain. Notably, the DOJ recently lost two high-profile criminal cases involving allegations that corporate defendants and individuals colluded to restrict workers’ pay and mobility, such as conspiring with other companies not to recruit each other’s senior-level employees.
These are landmark decisions that indicate the DOJ’s aggressive approach may not hold sway with criminal courts. However, even amid these setbacks, the DOJ is not likely to lose its resolve to prosecute such allegations. Rather, what this may prompt is a re-evaluation of the process by which it selects cases to pursue.
Whether the DOJ finds success with its prosecutions, businesses face heightened risk. All such enforcement activity is a reminder that compliance programs need to promote compliance with all laws affecting the corporation and not just those laws of primary application to the company’s business model. As such, the new enforcement activity should capture the focus of the compliance committee.
Time for an antitrust checkup
In response, corporate compliance teams will find there’s much to be done. Key antitrust-related compliance enhancements could include updated or entirely new guidelines on areas of civil and criminal antitrust enforcement now understood to be the focus of the new, aggressive government scrutiny.
Other steps to consider include:
- Additional monitoring efforts
- Enhanced executive and manager education
- Closer scrutiny of proposed transactions for signs of associated risks
Worth noting is the increased willingness of enforcement agencies (particularly the DOJ’s antitrust division) to consider the quality of a company’s antitrust compliance program as a mitigating factor in making a prosecution decision and/or in proposing a sentence.
Including antitrust law provisions in the compliance program may help a company detect potential violations at an early stage and position the organization to further benefit from the DOJ’s antitrust division’s leniency policy. This policy gives the first company to self-report criminal wrongdoing and cooperate with the division’s investigation immunity from prosecution, plus limits damages in any follow-on civil proceedings.
Recent changes to this policy underscore the promptness component in awarding leniency. This may be worth particular attention from the compliance committee, to underscore the need for corporate governance to take an active role in compliance and not overly defer to management. Prompt action by governance teams can help protect against any government inference that the company dithered upon learning of a potential antitrust violation.
The ultimate message to the compliance committee, which can be delivered by the general counsel and the chief compliance officer, is that this shift in the DOJ’s attitude toward labor market antitrust issues merits action. Businesses must reassess their exposure and their response to heightened DOJ investigation and enforcement in antitrust.