by J. Robert Brame, McGuireWoods LLP
In the 1990s, there was a growing concern about the “criminalization” of corporate law, in part justified by the passage of the Sarbanes-Oxley Act, which placed real criminal risks on top managers. While Sarbanes-Oxley was no threat to HR managers at first, innovative prosecutors and plaintiffs’ attorneys are changing that, and courts are beginning to allow longstanding criminal laws to be applied to store managers and HR managers. The prolabor Obama administration and the U.S. Department of Justice support this trend.
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‘Price fixing’
Competition between sellers is central to the American economy. A primary tenet of capitalism is that agreements among competing sellers (and buyers) to restrict competition harm the people of this country. In fact, Supreme Court Justice Thurgood Marshall once declared the Sherman Anti- trust Act to be the “Magna Carta of American liberty.”
State and federal antitrust laws generally prohibit collusion among competing sellers and buyers of goods and services. Just as an agreement or “understanding” among petroleum companies on sales prices or on the price or other terms for purchasing oil from well owners is punished with criminal sanctions, damages, and attorneys’ fees, buyers of services (including labor) may not “collude” or agree among themselves regarding whom they will hire, what they will pay employees or other terms, or conditions of employment. Such agreements also forbid “price fixing.”
The Federal Trade Commission (FTC) has opened an investigation into whether certain petroleum companies have colluded on salaries for managerial, professional, and technical employees. It began with a private lawsuit by a terminated Exxon employee who asserted that such an agreement existed. The trial court threw the claims out, but the Second U.S. Circuit Court of Appeals, in an opinion written by former appeals court judge and current Supreme Court Justice Sonia Sotomayor, reversed the lower court and sent the case back for a jury trial. The Exxon lawsuit and several similar suits were settled and the records sealed, but the allegations caused the FTC to open its investigation.
The Antitrust Division of the U.S. Department of Justice has also been investigating whether technology companies have agreed not to “raid” other companies’ employees. Technology companies often require employees to sign “noncompete agreements,” in which they agree not to work for a competitor. Such agreements between an employer and employee can be legal, although many states treat them with disfavor, resulting in lawsuits between corporations that hire each other’s employees. To avoid such claims, companies might be tempted to agree to honor one another’s noncompete agreements. Such a reciprocal arrangement would illegally restrict employees’ ability to work and reduce competition among the companies competing for labor services.
Finally, a number of private antitrust actions have been filed against hospitals in five cities. At issue is whether wage surveys focusing on registered nurses’ salaries are part of an agreement to set wages for nurses or otherwise reduce competition among participating hospitals. The stakes are enormous. In Chicago, for example, a nurse who filed suit sought to represent about 1,900 nurses and claimed more than $1 billion in damages. The case recently settled for a fairly nominal sum, although the record indicates that the defense lawyers spent more than 15,000 hours of their time and almost $4 million on expert testimony. At that rate, even a successful defense has consequences.
While wage surveys aren’t necessarily illegal depending on how they are developed and used, at a minimum, such surveys should be conducted by a trade association or, even better, by an independent entity. The results should be publicly available, and some time should pass before actual data is published. Wise HR managers will also have a knowledgeable antitrust lawyer review an intended survey from its inception through its use and publication.
Learn more about wage laws in the Wage and Hour Compliance Manual
RICO
Congress passed the Racketeer Influenced and Corrupt Organizations Act (RICO) to assist in curbing organized crime. Creative lawyering has found other uses for the statute, however, most recently in a series of lawsuits claiming that Georgia carpet manufacturers employed undocumented immigrants to hold down the wages of legal workers and thereby engaged in activities prohibited by RICO.
Like the antitrust laws, RICO allows both criminal felony prosecution by the government and private claims for triple damages and attorneys’ fees. To date, there have been no reported RICO jury verdicts in employment cases, but one of the original cases involving Mohawk Industries recently reached the U.S. Supreme Court, which sent it back for discovery (pretrial fact-finding) and, if appropriate, trial. The Supreme Court’s decision was also authored by Justice Sotomayor.
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False reports
Readers with good memories will remember the bitter West Coast grocery store strike in 2003 and 2004. The United Food and Commercial Workers (UFCW) had long represented employees of Ralphs (a division of Kroger), Albertsons, and Vons.
The union used “whipsaw” tactics, which are quite effective in highly concentrated industries. Under a whipsaw, one employer would be struck at a critical time, and the employees of its competitors (who weren’t on strike) would contribute to the union’s strike fund, which supports the striking workers. Meanwhile, the struck employer would see its customers shopping at its not-yet-struck competitors. The struck company would settle with the union to preserve its market share and be assured that the whipsaw would be used to impose the same generous contract terms on its yet-to-be-struck competitors.
As a defensive device, the three grocery chains agreed to a revenue- sharing and lockout arrangement under which the unstruck companies would either share the increased profits with the struck company or “lock out” all UFCW-represented employees so they could not support the struck company.
The UFCW struck Vons and Ralphs, and Albertsons locked out its UFCW-represented employees. The situation was extremely difficult for HR; not all employees supported the UFCW, but National Labor Relations Board (NLRB) rules make it difficult for employers to engage in anything other than a total lockout — that is, a lockout of all union-represented employees.
Ralphs covertly agreed to rehire more than a thousand of its locked-out employees, but at different stores so the picketers wouldn’t recognize them. Since the union could ask for the names and addresses of all strike breakers, the stores also used false names and I-9 documents.
When the scheme came to light, federal grand juries returned a series of criminal indictments against Ralphs and several managers. Ralphs immediately pleaded guilty to using false social security numbers and concealing facts from union benefit plans and paid a $70 million fine.
The grand jury also issued a 23-count indictment against five Ralphs managers, including two vice presidents and three zone managers, and three one-count indictments against two store directors and a district manager for making “false statements to investigators.”
The matter is ongoing, but the indicted individuals could face up to 30 years in federal prison as well as millions of dollars in restitution. By helping locked-out workers (and themselves by hiring workers already familiar with their system), these managers then had to avoid detection by using false names, which led to knowingly using false I-9 documents and filing false reports. As one step led to another, these managers have now found themselves in a massive regulatory web and stand as warnings to other store and HR managers.
Takeaway
These examples don’t involve everyday situations, but they do illustrate increasingly common and successful litigation strategies. HR and store managers must therefore look beyond employment laws to the broader risks of their actions or take a chance on becoming the poster child for the next wave of innovative lawsuits and investigations. At a minimum, HR managers must ask themselves the following questions:
- When we undertake new actions that involve competing employers (including wage surveys), are we hoping that other employers competing for the same employees will follow our lead or are we responding to what we think is another employer’s invitation? And would our effort succeed only if other employers undertook the same or similar actions? (Example: initiating a new broad noncompete agreement and announcing it at a SHRM meeting.)
- Would our actions cause our employees to suspect that we have an agreement or “understanding” with competing employers that harms them?
- Does the action we are considering undertaking arguably interfere with the competitive rights of other employers or employees or with competitive labor markets?
- Does any step require a false statement or report, either oral or written? (Warning: A mailed or e-mailed false report could become “mail or wire fraud,” which is both a crime and an important element in a RICO suit.)
- Would we be embarrassed if our actions were described on the front page of our local paper?
If the answer to any of those questions is yes, you should consult counsel. If the risk involves competition, you should consult counsel knowledgeable about the antitrust laws in your area.