Lawsuits Could Raise Scrutiny of Compensation Surveys

By Staff Report

Aug. 6, 2006

Participating in salary surveys helps many employers stay on top of compensation trends in their industries. Such surveys often act as the bread and butter for companies’ recruiting and retention efforts.

But a recent spate of lawsuits may put this kind of information sharing under a microscope.

Four class-action lawsuits filed simultaneously in June against separately owned hospitals in Chicago; Albany, New York; Memphis, Tennessee; and San Antonio allege that they conspired to keep nurses’ wages down.

The lawsuits, which were filed in federal court in the four cities, allege that the hospitals exchanged compensation information through telephone conversations, meetings and written surveys and that “the exchange of this information itself has suppressed competition” among the hospitals in how they compensate their nurses and thus kept wages low in violation of antitrust laws. The suits have raised the eyebrows of labor lawyers, who note that evidence for the cases was uncovered by the Service Employees International Union.

It’s part of a greater corporate campaign by the SEIU, says Connie Ber­tram, a partner in the Washington, D.C., office of Winston & Strawn.

“These kinds of tactics help unions to prove that they are working in the interest of employees while putting pressure on employers,” she says.

If the suits are successful, it could mean that all employers have to take extra steps to make sure the salary surveys they participate in do not violate antitrust laws, says Russell Miller, a senior client partner in the executive compensation group of Korn/Ferry International.

Under current rules, employers are allowed to share salary information as long as it’s through an independent third party and the information is not specific. “It’s possible that this suit may mean that companies have to go through higher hurdles when working with third parties,” Miller says.

Companies may want to make sure they have an antitrust lawyer review all materials before submitting them, he says. Employers also may want to include even less-specific information in these surveys, Miller says.

Experts warn that executives may have to be more careful when having casual conversations about compensation, which often occurs at trade shows or industry events.

“This may be how some companies get their best information (on compensation trends), but it might be the most dangerous,” says Gerald Hathaway, a partner in the New York office of Littler Mendelson.

“If the unions get the scent that a company may not be in compliance with antitrust rules, they are going to use that information,” he says.

But Dan Smith, a partner at Cohen, Milstein, Hauseld & Toll, one of the law firms that filed the suits, says there is no reason for employers to become paranoid.

“The practices that we are challenging are not a gray area. The hospitals were clearly flouting the antitrust rules,” he says. “In these cases there are some legitimate surveys that have occurred, and they are not the ones that we are challenging.”

Jessica Marquez

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