Justice Dept. Settles First ‘No-Poach’ Charges With Knorr-Bremse (1)

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By Eleanor Tyler

Knorr-Bremse AG and Westinghouse Air Brake Technologies Corp. (Wabtec) have settled allegations by the Justice Department that they illegally agreed not to hire each other’s employees, depressing salaries and competition.

The two rail equipment companies are the first charged under new DOJ guidelines issued in October 2016 clarifying that “no-poach” agreements like this violate antitrust laws.

The April 3 settlement also incorporates several terms DOJ antitrust chief Makan Delrahim has stressed are important to the agency’s ongoing enforcement and regulation obligations to protect the public. This settlement is a first look at the explicit language defendants should expect to see in consent degrees in the future.

In the wake of revelations that high-tech companies broadly agreed not to compete for each others’ employees, DOJ has stressed that agreements to stifle competition for workers and keep salaries low “eliminate competition in the same irredeemable way” as price fixing on products or illegally dividing up a market.

Since his appointment as head of the antitrust division, Makan Delrahim has repeatedly said that the division has several investigations of no-poach agreements underway and is open to bringing criminal charges where appropriate. A DOJ official told reporters April 3 that an investigation is ongoing into other companies and related industries and that the division may bring other cases.

In a statement, the DOJ said civil enforcement was appropriate in this case because Knorr and Wabtec’s agreements were discovered by the antitrust division and terminated by the parties before October 2016.

Knorr-Bremse and Wabtec’s illegal no poach agreements “restrained competition for employees” and deprived workers of “important opportunities, information, and the ability to obtain better terms of employment,” Delrahim said in the statement.

Top Rivals

DOJ’s complaint, filed in D.C. federal court along with the proposed settlement agreement, says that, beginning in 2009, Knorr and Wabtec agreed not to solicit each others’ employees. The DOJ says that Faiveley Transport S.A. was also part of the deal before being acquired by Wabtec in November 2016. During that merger investigation, DOJ staff found evidence of the agreements and opened an investigation, the DOJ official said.

The complaint cites communications between Knorr and Wabtec’s “most senior executives” setting forth formal agreements not to poach each others’ employees.

As the two largest rail suppliers in the world and each other’s “top rivals,” the complaint says, the two companies substantially impacted the market for specialized workers by not bidding up employees’ salaries with competing offers.

According to the complaint, it was Wabtec’s purchase of Faiveley that broke up the no-poach agreements between the companies. After Wabtec announced the deal in July 2015, a high-level Knorr executive told the company’s recruiters “to raid Faiveley for high-potential employees.”

Model Language

The proposed final judgment memorializing the settlement between the DOJ and the companies includes terms Delrahim has said will become standard while he is heading the agency.

At a conference in January, Delrahim said his division is actively reviewing 1,300 live consent decrees, spanning 100 years of enforcement, that the agency must oversee. He also noted that the standard to enforce those settlements is much higher than the standard the antitrust division would have to meet to prove liability in a civil case. “Parties know that,” he said, and it undermines the division’s negotiating power in dealing with possible violations of older settlement agreements.

He pledged that his division will do things differently. First, the agreement has a sunset provision after seven years, a feature past consent decrees haven’t included. The DOJ can terminate it in five years if it concludes it monitoring is no longer necessary. Delrahim, 48, said in January that if a consent decree is older than he is, it “should be suspect” because markets are dynamic and committing to unlimited monitoring takes valuable resources the DOJ could use on more pressing problems.

If the companies violate the consent decree, the DOJ can ask for a one-time extension on the deal.

The agreement also explicitly sets the standard of proof for any future enforcement of the consent decree at “a preponderance of the evidence,” the standard needed to prove a violation in civil court. The companies waive any argument that a higher standard might apply. This is not the first use of these provisions, but together they reflect the division’s new approach to settling cases.

Those new provisions join standard compliance and reporting obligations that bolster their pledge not to violate the law again and strengthen the DOJ’s rights if a violation occurs. The agreement also says that the companies will assist the DOJ in its ongoing investigation of other companies and related industries that might have similar agreements.

The case is U.S. v. Knorr-Bremse AG , D.D.C., No. 18-cv-00747, 4/3/18 .

To contact the reporter on this story: Eleanor Tyler in Washington at etyler@bloomberglaw.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com

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