It is important to educate company executives, managers and employees generally about the possible antitrust risks inherent in their respective roles. (Photo: Shutterstock)
On Jan. 28, the U.S. District Court for the District of Colorado declined to dismiss a criminal antitrust indictment alleging a dialysis operator, DaVita, and its former CEO colluded with competitors by agreeing not to recruit or "poach" each others' employees. The same day, the Department of Justice announced yet another "no-poach" indictment—this time accusing four owners and managers of home health care agencies of allegedly conspiring to fix the rates paid to their workers and to refrain from hiring each others' employees. These events are the latest in a string of criminal enforcement actions brought by the DOJ for alleged "no-poach" agreements and emphasize the DOJ's focus on competition in labor markets and its effects on workers.
In his July 9, 2021, Executive Order on Promoting Competition in the American Economy, President Joe Biden affirmed his commitment to enforcing the antitrust laws in labor markets and denounced the consolidation of "corporate employers, making it harder for workers to bargain for higher wages and better work conditions." The Biden administration has made good on this promise in the form of a series of criminal indictments brought by the DOJ's Antitrust Division for alleged "no-poach" agreements between companies who compete for employees.
How did we get here?
The term "no-poach" is used to encompass a variety of agreements between companies regarding the hiring and recruiting of employees. Enforcement of no-poach agreements first made headlines in 2010, when the DOJ's Antitrust Division brought a series of civil enforcement actions against multiple high profile tech companies that agreed not to cold call or directly solicit one another's software engineers, digital animators and certain other types of specialized employees. The federal enforcement actions—none of which involved criminal allegations—ended with consent orders prohibiting the future use of "no-poach" agreements, which then spurred plaintiffs lawyers to file follow-on class actions seeking compensatory and treble damages on behalf of current and former employees of the defendant companies. The class actions were resolved via settlements totaling more than $400 million.
The first time the DOJ publicly claimed that "no-poach" conduct could be subject to criminal penalties was in a 2016 joint report issued by the Federal Trade Commission and DOJ Antitrust Division (collectively "the Agencies") entitled: Antitrust Guidance for Human Resources Professionals. The 2016 guidance was published by the agencies "to alert human resource (HR) professionals and others involved in hiring and compensation decisions to potential violations of the antitrust laws." In it, the agencies affirm that antitrust laws apply with equal force in labor markets as they do in traditional markets and outline certain kinds of conduct, such as "no-poach" and wage-fixing agreements, that the agencies believe violate antitrust laws. Importantly, the agencies assert that "[n]aked wage-fixing or no-poaching agreements among employers … are per se illegal under the antitrust laws" and announced that "[g]oing forward, the DOJ intends to proceed criminally against naked wage-fixing or no-poaching agreements."
The current landscape: A proliferation of no-poach indictments
For decades, per se treatment and criminal prosecution of Sherman Act violations have been reserved for three long-established categories of "hard-core cartel activity:" price fixing, bid rigging and market allocation. However, in the 2016 Guidance, the agencies announced that "no-poach" conduct is merely a form of market allocation in which competing employers allocate the market for employees, and thus, that per se treatment of such agreements is proper. The agencies declared that "no-poach" agreements "eliminate competition in the same irredeemable way as agreements to fix product prices or allocated customers, which have traditionally been criminally investigated and prosecuted as hardcore cartel conduct."
Despite the enthusiasm for "no-poach" criminal enforcement exhibited by the 2016 guidance, it was not until January 2021 that the DOJ made good on its promise and brought the first "no-poach" criminal indictment. In United States v. Surgical Care Affiliates, a grand jury returned an indictment alleging that Surgical Care Affiliates and two other then-unindicted companies had "engaged in a conspiracy to suppress competition between them for the services of senior-level employees by agreeing not to solicit each other's senior-level employees."
The indictment characterized the conduct as a "per se unlawful, and thus unreasonable" restraint of trade that violated § 1 of the Sherman Act. After this first indictment, the DOJ continued its march on "no-poach" conduct by bringing indictments in four other cases over the past year: United States v. Hee, United States v. DaVita (indicting DaVita as an alleged co-conspirator of SCA), United States v. Patel, and United States v. Manahe. In Manahe, the most recent of these indictments, the DOJ indicted only individuals—bringing charges against four owners and managers of home health care agencies for allegedly conspiring to fix the rates paid to their workers and to refrain from hiring each other's.
The only "no-poach" motion to dismiss that has been ruled upon is in DaVita, where the court rejected DaVita's arguments that the indictment is improper. Motions to dismiss other no-poach indictments are pending in federal courts in Texas and Nevada, and it remains to be seen whether the Antitrust Division will similarly prevail in those jurisdictions. It will very likely be some time—months or years—before federal appellate courts weigh in on this issue and give more guidance as to whether no-poach conduct should in fact be treated criminally.
Unless and until a significant court decision strikes down its approach, companies should expect that the Antitrust Division will continue to investigate and criminally pursue no-poach agreements. It is thus more important than ever that companies undertake deliberate efforts to minimize liability and prevent no-poach conduct before it happens.
At a high level, to maximize effectiveness, it is important to educate company executives, managers and employees generally about the possible antitrust risks inherent in their respective roles. Companies also should undergo a comprehensive review of the antitrust risks that each category of employee poses and tailor the antitrust compliance approach accordingly. Human resources professionals and others at the company involved in hiring and recruiting should undergo training on the topic of antitrust and "no-poach" issues. Companies also should have detailed policies regarding communications with competing employers regarding employee wages, benefits and contract terms, as well as prospective employees to include hiring strategies and practices.
Looking forward, there are significant open questions that will determine whether "no-poach" will truly become the next frontier of antitrust enforcement or just a passing pitfall. Only time will tell if the DaVita court's ruling will be the first domino to fall in the DOJs crusade against labor exploitation or merely a minor blip. Either way, in the near term, the unsettled landscape presents tricky compliance considerations that companies should move swiftly to address.
Zachary Terwilliger is a partner; Lindsey Vaala is counsel; and Rami Rashmawi is an associate in Vinson & Elkins' Washington, D.C., office.
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