The U.S. Department of Justice (DoJ) filed a complaint recently alleging that competing railroad equipment manufacturers Knorr-Bremse AG, Westinghouse Air Brake Technologies Corporation (Wabtec) and Faiveley Transport S.A. had unlawfully agreed not to recruit or hire each other's skilled employees, thus depriving them of competition for their services. Accompanying the complaint was a consent decree barring such agreements in the future.

The circumstances leading to the complaint, the government's decision to file civil, rather than criminal, charges against the defendants and the decree’s compliance provisions are important for several reasons.


In 2015, Wabtec agreed to buy competitor Faiveley Transport in a $1.8 billion, HSR-reportable deal. During its investigation, DoJ discovered that at various times between 2009 and 2015, the two companies and Knorr-Bremse, a third competitor, had agreed not to solicit or hire each other's skilled employees—including project managers, engineers, sales executives, business unit heads and corporate officers. The agency eventually cleared the transaction, subject to Wabtec's divestiture of Faiveley's United States operations. An independent investigation of the "no-poach" agreements continued, however, resulting in the recent complaint and consent decree.

Five Takeaways

First, this is a no-poach enforcement action in a traditional, "old economy" industry. Earlier DoJ no-poach cases typically involved competition for the skilled employees of high-profile firms in "new economy" media/technology industries. There is no longer any reason to believe future no-poach prosecutions will be rare and limited to new economy firms.

Second, although in October 2016, DoJ publicly announced its intent to file criminal felony charges against firms engaged in no-poach agreements that were not tied to a legitimate transaction or collaboration (for example, a joint venture to develop new products), the agency here pursued civil charges because the parties had terminated the unlawful conduct before the agency's announcement. Going forward, criminal, not civil, enforcement will be the rule.

Third, the complaint alleges that as labor market allocations, defendants’ no-poach agreements were per se violations of the Sherman Act, and thus unlawful without regard to whether, in practice, they unreasonably restrained competition in a market consisting of rail industry employee services. The complaint notes, however, that Knorr-Bremse, Wabtec and Faiveley Transport were the three largest firms in a "insular" industry with a very limited pool of potential employees. How the agency would address no-poach agreements between smaller competitors in more open labor markets is uncertain.

Fourth, the consent decree includes compliance terms that the DoJ has separately advised will likely become standard in all DoJ antitrust decrees. Defendants agree that in any future DoJ action regarding alleged violations of the decree, liability may be established by a lower standard of proof—a preponderance of evidence, rather than clear and convincing evidence. Defendants also agree to reimburse the government for successful compliance-related investigation and enforcement costs.

Finally, the case is a reminder that when, in an HSR merger investigation, DoJ or FTC issues broad "second requests" for documents and data, the investigation may, in practical effect, become an audit of all the parties’ recent and current commercial conduct. Company documents may reveal antitrust problems unrelated to the reported merger—for example, price-fixing or bid-rigging between the merger partners or with other competitors. Such conduct can lead to criminal prosecution. Firms considering mergers with competitors should "look before they leap" into the HSR process.

© 2018 Perkins Coie LLP