Corporate Counsel Connect collection

March 2014 edition

Hot documents; FTC dismissal of conspiracy claims; criminal background inquiries

Hot documents

Companies should train their executives and employees on the antitrust risks of creating hot documents relating to competition. Hot documents played a large role in the federal government's recent successful litigation of the consummated mergers of Bazaarvoice, Inc. and PowerReviews, Inc., and St. Luke's Health System, Ltd. and Saltzer Medical Group, P.A.

In Bazaarvoice, the companies' documents and executives' statements supported the Department of Justice's (DOJ's) theory of a substantial potential loss of head-to-head competition between the parties post-merger by:

Demonstrating that Bazaarvoice and PowerReviews increasingly competed on price.
Acknowledging PowerReviews as Bazaarvoice's primary competitor.

Similarly, in St. Luke's, which involved an acquisition of a physician's group, St. Luke's documents supported the Federal Trade Commission's (FTC's) theory that, post-acquisition, St. Luke's would have greater bargaining leverage with insurance companies to negotiate increased rates. These hot documents included:

An analysis of increasing reimbursements post-acquisition by insisting that health plans pay higher hospital-based rates for routine ancillary services.
An e-mail discussing the idea of pressuring health plans post-acquisition as a way to increase prices and overall financial performance.

Hot documents can also benefit a company. For example, in the recent FTC case against McWane, Inc., the FTC analyzed whether McWane's distribution arrangement with its competitor, Sigma Corporation, was anticompetitive. In concluding that the arrangement did not violate the antitrust laws, the FTC took into account e-mails from a McWane executive describing Sigma as innocuous, rather than a competitive threat.

For more information on the risks of creating hot documents, see Practice Note, Corporate Transactions and Merger Control: Overview and Creating 4(c) and 4(d) Documents Checklist.

FTC dismissal of conspiracy claims

Companies should not interpret the FTC's recent dismissal of conspiracy claims against McWane, Inc. as a green light to engage competitors in price signaling or exchanges of competitively sensitive information.

The facts underlying the conspiracy allegations against McWane included:

Indirect price communications between competitors through periodic price list messages to customers.
Exchanges of price information, described by McWane as historical and aggregated.

While the McWane decision is important for many reasons, including because it ends the FTC staff's long winning streak in FTC administrative actions, it is not a good predictor of future enforcement of competitor communications. This is because the two conspiracy counts against McWane resulted in a split among FTC Commissioners along party lines. Currently the FTC is made up of only four commissioners, two Republicans and two Democrats, rather than its usual five commissioners. When no majority vote is reached, there is no action, and the FTC dismissed the counts against McWane.

Rather than view McWane as a green light for certain dealings with competitors, companies should consider that the facts in McWane garnered two Democratic votes for enforcement, including a vote from Chairwoman Edith Ramirez. The fifth FTC Commissioner seat is likely to be filled soon, as Democrat Terrell McSweeny makes her way through the confirmation process. Therefore, this period of enforcement inaction is likely short lived.

For more information on competitor communications, see Practice Note, Competitor Collaborations in the US .

Criminal background inquiries

Employers should revisit their hiring procedures given the growing number of state and local "ban-the-box" laws restricting when private employers can ask about an applicant's criminal history.

Ban-the-box laws differ, but they generally:

Prohibit criminal conviction inquiries on employment applications.
Delay criminal conviction inquiries until later in the hiring process.
Permit exclusion based on criminal history if it is job-related and consistent with business necessity.
Exempt specific jobs or industries where federal or state law restricts criminal history.

Applying federal law, the Equal Employment Opportunity Commission's (EEOC's) 2012 guidance on the topic states that broad policies against hiring individuals with a criminal background may have a discriminatory impact on race and national origin. The EEOC encourages employers to:

Consider at least:

the nature of the crime;
the time elapsed; and
the nature of the job.

Provide opportunities for an individualized assessment of screened-out candidates.

Because more state, local and federal restrictions on criminal background inquiries are expected, employers should:

Review applicable federal, state and local restrictions.
Identify the types of convictions that are job-related.
Balance compliance with minimizing negligent hiring claims and risk to safety and property.
Evaluate the risk of a one-locality-fits-all employment application.
Request written disclosure of an applicant's criminal history later in the hiring process, such as after a conditional offer.
Provide adverse action notices required by the Fair Credit Reporting Act and similar state laws.
Provide an individualized assessment of candidates screened out because of their criminal history.
Document decisions not to hire based on criminal history.
Train hiring managers on criminal background inquiry restrictions.
Keep criminal background information confidential and separate from personnel files.

For more information on state laws governing hiring and criminal background checks, see Hiring Requirements: State Q&A Tool and Background Check Laws: State Q&A Tool.

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