Nearly a year into the Biden administration, employers have received a few glimpses of federal regulators' enforcement priorities and the ways in which those enforcement areas intersect with HR.
Going into 2022, areas such as antitrust law and environmental, social and governance issues, or ESG issues, are particularly key, management-side attorneys with law firm Blank Rome said during a Dec. 7 webinar.
Regulators aim to preserve competition in the labor market
In July, President Joe Biden issued Executive Order 14036, aimed at promoting competition in the U.S. economy. The document focused heavily on antitrust issues affecting U.S. consumers, such as those regarding prescription drug prices and internet access costs, said William E. Lawler, partner at Blank Rome.
But the order also addressed broader antitrust issues directly relevant to the employment context, Lawler continued. One of the biggest pieces has to do with noncompete agreements, including those used by private companies. "The [Federal Trade Commission] has been instructed to see whether those should exist at all," Lawler said.
Additionally, the order directed enforcement agencies to investigate occupational licensing requirements, which the administration believes may be limiting talent mobility, Lawler said. Criticism also extends to those that provide certification, he noted, as these are frequently private entities rather than government agencies. "Any time you limit the workforce, that could be an antitrust issue."
Wage fixing represents yet another potential violation of antitrust laws, Lawler continued, even if the issue has not always been historically clear cut.
"It would probably seem to us that if we agreed to fix wages in a particular industry, that would be a clear violation of antitrust laws," he said. "But in fact that has not been so clear, because the government has not criminally enforced agreements regarding wages."
In 2016, FTC and the U.S. Department of Justice published a joint notice to HR professionals stating that agreements attempting to limit or fix the terms of employment for potential hires among competing employers may violate antitrust laws if such agreements constrained individual firm decision-making regarding wages, salaries, benefits, terms of employment or job opportunities.
It was not until last year, however, that the government issued its first indictment, Lawler said, in United States v. Jindal. In the case, DOJ obtained an indictment against the Texas owner of a therapist staffing company in which it alleged that the defendant knowingly entered into and engaged in a conspiracy to suppress competition by agreeing to fix prices and lower the pay rates of physical therapist and physical therapist assistants.
"Interestingly, it started as an FTC investigation — a civil matter," Lawler said of Jindal. "One of the things that [the defendant] did, he made one of the fundamental mistakes, which is that when you're talking to the government you're not supposed to lie. And he did, and he was caught, and it became a criminal matter."
On Nov. 29 a federal judge wrote in the Jindal case that an agreement to fix wages is a per se violation of antitrust laws. "That's an important distinction because per se violations are the kind that are prosecuted criminally," Lawler noted.
Since the initial indictment in Jindal, federal regulators have issued two additional indictments in separate cases, Lawler said, one involving home healthcare and another involving occupational therapy.
"That's why we think the government enforcement of competition laws related to labor supply is very, very important," he continued. Whereas a well-functioning organization would traditionally train its sales force, marketing and supply buyer teams on antitrust issues, "now you have to make sure you train your HR function too."
Lawler said the FTC and DOJ are the two agencies that will be primarily tasked with enforcing these and other employment-related antitrust regulations, but Biden also ordered the creation of the White House Competition Council consisting of the cabinet secretaries and various other agency representatives.
"This is called the whole of government approach," Lawler said in reference to the formation of the competition council. "All of government is intended to make sure that competition is fair."
Are employers following through on ESG statements?
In the past year and a half, organizations large and small have published statements on environmental, social and governance issues, or ESG issues. This category of subjects ranges widely and can include hot-button topics like climate change as well as diversity, equity and inclusion, among others.
"ESG issues are headlines each and every day and at the forefront of the minds of most executives and investors out there now," said Paul H. Tzur, partner at Blank Rome, who noted the incentives and pressures employers face in showing the public their ESG plans and initiatives. But those statements also can attract the scrutiny of regulators.
Look no further than the Securities and Exchange Commission, which recently appointed its first senior policy advisor for climate and ESG and created a task force focusing on the same. In a statement announcing the task force's creation, SEC pointed to specific areas for enforcement, including the identification of material gaps or misstatements in organizational disclosures of climate risks as well as the analysis of investment advisers' and funds' ESG strategies.
"It's important because these public statements that companies issue, they come at a cost," Tzur said. "Any time that a company makes an incorrect or inaccurate statement, including a statement about ESG, this can lead to litigation by shareholders. They could also lead to regulatory enforcement by the SEC and, ultimately, if it's a willful misstatement, they can lead to DOJ criminal prosecution."
Specifically, Tzur said statements made by top executives must be reflected in how the organization does business at all levels. For example, if an employer states its commitment to D&I at a public level, but a business unit at one location is not abiding by that commitment and is not hiring or promoting based on those D&I initiatives, that could mean the statement is untrue. According to Tzur, that opens the door for litigation, investigations or both.
Materiality is the key standard for employers to pay attention to when it comes to ESG statements. "What does create materiality is a firmness, a concrete nature of the statement, and a time component," Tzur said. He cited two separate lawsuits filed by shareholders of Oracle and Facebook, in which the shareholders alleged the companies made material representations of their D&I initiatives in their proxy statements.
In the Facebook case, investors alleged that the company's 2020 statement, which said in part that "diversity and inclusion are core to everything we do at Facebook" and that "we have made steady progress in increasing representation of women globally in technical, non-technical and leadership roles and have made some progress on increasing the numbers of Black and Hispanic people in non-technical roles in the U.S," was untrue. The court, however, ruled that these statements were not material but instead aspirational. "Because the statement wasn't material, the statement wasn't actionable," Tzur said.
Organizations could place themselves at risk if ESG statements are grounded in metrics. "It doesn't have to have numbers, but [...] the clear cases where a statement is a material is when it does involve numbers," he continued.
So if a company were to say in a press release, a 10-K filing or some other type of material that 40% of its workforce consisted of women and 35% consisted of minority employees, but those numbers were false, that could be considered material by investigators, Tzur said.
He added that it is the responsibility of an organization's compliance function to ensure that ESG statements are followed through, explain these statements through the organization and have procedures, metrics and controls in place in order to ensure that the organization is following through.