Labor Antitrust Enforcement: Looking Ahead to 2023
February 6, 2023
The year 2022 saw many significant developments at the intersection of antitrust and labor law: criminal enforcement brought the first wage-fixing and no-poach cases to trial; antitrust enforcers targeted noncompete agreements; and merger enforcement focused on labor market impacts. Policy revisions and increased resources to bolster investigative and trial capacities signaled an appetite by the Department of Justice’s Antitrust Division (the Division) and the Federal Trade Commission (FTC) for, and a commitment to, labor antitrust enforcement. We examine each of these areas below and preview what may come in 2023.
1. Criminal Enforcement: Wage Fixing and No-Poach Agreements
The Division has made good on its 2016 warning, in the Antitrust Guidance for HR Professionals, that wage-fixing and naked no-poach agreements would be subject to criminal prosecution.
In 2022, the Division litigated its first criminal no-poach trial, United States v. DaVita. The indictment charged dialysis company DaVita and its CEO with agreeing with competitors not to hire certain employees. Defendants moved to dismiss the charges on the grounds that the alleged agreement was not a per se violation of the Sherman Act. The court denied the motion, holding that the charges could constitute a per se offense. However, the Division’s initial victory did not translate into convictions: After a two-week trial, the jury acquitted the company and its top executive on all three counts.
At the same time, the Division pushed criminal wage-fixing cases. United States v. Jindal, et al., 4:20-cr-00358 (E.D. Tex.) alleged that the CEO of a therapist staffing company conspired with competitors to fix the wages of physical therapists and assistants. The jury reached a verdict one day before the DaVita jury did, with similar results. It acquitted the defendants of the antitrust charges.
Undeterred, the Division has continued to aggressively investigate and prosecute no-poach and wage-fixing agreements. Assistant Attorney General Jonathan Kanter said the Division will “continue to bring the cases. We’re not backing down.” In October 2022, the Division secured its first and only criminal no-poach win—a guilty plea, from VDA OC LLC (“VDA”), for entering into a nine-month agreement not to recruit nurses from a competitor school district or to raise school nurses’ wages. The plea agreement included a $62,000 fine and restitution of $72,000 for affected nurses. The Division’s case against VDA’s former regional manager, Ryan Hee, ended in a deferred prosecution agreement that avoids prison time and includes community service requirements.
Three significant cases are going to trial in 2023. First is a companion prosecution to the DaVita case: United States v. Surgical Care Affiliates, LLC et al., 3:21-cr-00011 (N.D. Tex.). Originally scheduled for trial in January 2023, the parties are waiting for the court to set a new date.
Second, in United States v. Manahe et al., 2:22-cr-00013 (D. Me.), the Division brought charges against four home health care agencies and their owners or managers for no-poach and wage-fixing agreements related to personal support worker services. Antitrust litigators are closely watching this case because, unlike DaVita, the defendants claim the agreements at issue were ancillary to a legitimate collaboration.
Third, and similarly, in United States v. Patel et al., 3:22-cr-00270 (D. Conn.), the Division has charged six aerospace engineering executives with a no-poach conspiracy. Defendants argue their agreements are not criminal because they had ancillary and vertical elements.
Both the Manahe and Patel indictments survived motions to dismiss, in which defendants claimed that no-poach cases could not be criminally prosecuted as per se violations a matter of law. Trials for Manahe and Patel are set for March 2023.
a) What to look for in 2023
The Division will likely continue pushing the boundaries of traditional per se conduct. As one Division official remarked when discussing the acquittals in Jindal and DaVita: “In no way should the verdict ... be taken as a referendum on the Antitrust Division’s commitment to prosecuting labor market collusion or on our ability to prove these cases at trial.”
Both antitrust agencies are building resources to support more aggressive investigations and trial capacity. In March 2022, the Biden administration requested a budget increase for 2023 of $88 million for the Division’s initiatives and $139 million for the FTC’s initiatives to bolster antitrust, privacy, and consumer protection work. The final Spending Bill (the Consolidated Appropriations Act, 2023) provided the Division with $225 million—an increase of nearly $35 million over its 2022 budget—and the FTC with $430 million—an increase of $53.5 million over its 2022 budget.
In addition, the Division has stepped up cross-agency collaboration, signing a Memorandum of Understanding (MOU) with the National Labor Relations Board (NLRB) in July 2022, acknowledging their shared interest in policing competition in labor markets. The MOU is intended to facilitate information sharing and cross-agency consultations for official law enforcement purposes; cross-agency training to educate each agency about the laws and regulations enforced by the other; and coordinated outreach and education to protect workers in the “gig economy” and other labor markets, to enhance law enforcement by the agencies, and to promote interagency collaboration. This collaboration is in line with the Biden administration’s “whole of government” approach to antitrust enforcement, where agencies coordinate to advance the administration’s overarching policy goals. AAG Kanter touted the partnership in congressional testimony, describing it as consistent with the DOJ’s other enforcement activities against wage-fixing and noncompete agreements. The cross-agency collaboration will likely lead to more enforcement actions against perceived anticompetitive labor market practices.
2. Civil Enforcement: Noncompete Agreements and Merger Reviews
In addition to criminal enforcement, the DOJ, FTC, and state attorneys general continue to ramp up civil antitrust enforcement in labor markets. The most noteworthy developments involve noncompete agreements and merger reviews.
a) Noncompete Agreements
On January 5, 2023, the FTC released a proposed rule banning the use of noncompete agreements in almost all circumstances. (The lone exception is for noncompete agreements in connection with the sale of a business—and only if the person subject to the noncompete owns 25% or more of the business being sold.) The proposed rule would apply to all workers, paid or not, regardless of whether workers are classified as employees or independent contractors. It also would preempt all inconsistent state laws and regulations that offer fewer protections for workers. The FTC is soliciting public comments through March 10, 2023, and then the agency will have 180 days to decide whether to issue a final rule, either as proposed or with modifications. This proposed rule builds on a series of actions signaling the FTC’s intent to target noncompetes. In July 2022, the FTC entered into a Memorandum of Understanding with the National Labor Relations Board, committing to information sharing, cross-agency training, and outreach in common areas of regulatory interest.
On January 4, 2023, the FTC announced that it had entered consent orders against three companies to resolve allegations that the companies’ use of noncompete agreements constituted an unfair method of competition in violation of Section 5 of the FTC Act. The orders enjoined the companies from enforcing or threatening to enforce their noncompete agreements.
These enforcement activities follow from the FTC’s newer, more expansive interpretations of its own power. The FTC released an updated statement in November 2022 that took an expansive view of its authority under Section 5 of the FTC Act, which prohibits “unfair methods of competition.” The statement makes clear that the FTC interprets Section 5 to extend beyond the scope of the Sherman and Clayton Acts to encompass “unfair methods of competition in their incipiency based on their tendency to harm competitive conditions,” including conduct that violates not only “the letter,” but also “the spirit” of the antitrust laws—all concepts the FTC draws on in its proposed rule banning noncompetes.
State enforcers are also challenging noncompetes with a shift toward limiting enforceability. For a long time, California was the only state that banned noncompetes, but in 2022 North Dakota, Oklahoma, and Washington, D.C., have followed suit.
Other states substantially restrict the use of noncompetes by setting salary thresholds or limiting the types of employees who may be bound. Even in New York (which has traditionally permitted noncompetes), legislators have taken steps to limit their use: The 21st Century Antitrust Act, introduced and passed by the New York State Senate, prohibits anticompetitive conduct by dominant market participants. In the context of labor markets, the statute specifies that the use of noncompete clauses or no-poach agreements, or the unilateral power to set wages could be evidence of market dominance.
b) Merger Review
Labor markets are also facing increased scrutiny during merger review. The Division successfully challenged Penguin Random House’s proposed acquisition of Simon & Schuster on the theory that the combined company would be able to reduce advances paid to authors of anticipated top-selling books. AAG Kanter touted the court’s decision as “a victory for workers” that “reaffirms that the antitrust laws protect competition for the acquisition of goods and services from workers.” Similarly, FTC Chair Lina Khan has stated that she believes that policy debates have shifted from whether antitrust law should be applied to labor agreements to how the laws can be used to protect workers. Under her leadership, the FTC is raising new concerns in merger review, such as how proposed deals “will affect unionization, ESG policies, or franchising.” We expect the Division and the FTC to continue investigating and challenging mergers that they believe create adverse effects on labor markets.
In addition, we anticipate that the soon-to-be-released merger guidelines will address labor markets. The agencies sought public comments on several issues related to mergers’ impact on labor markets, including whether labor market impacts should be specifically addressed, whether anticompetitive effects could extend beyond financial measures such as wages, and whether the elimination of jobs should be considered a cognizable efficiency. Indeed, Khan has noted that updating the guidelines "offers an opportunity to clarify and update how we assess a merger's potential effects on labor markets." The revised merger guidelines may provide a roadmap for merger enforcement in labor markets for years to come.
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The year 2022 was a groundbreaking one for antitrust enforcement in labor markets as the agencies experimented with new and untried legal theories. We expect more developments in 2023 as these issues play out.
This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Anna T. Pletcher, an O’Melveny partner licensed to practice law in California, Julia Schiller, an O’Melveny partner licensed to practice law in the District of Columbia, New Jersey, and New York, Kelse Moen, an O'Melveny counsel licensed to practice law in the District of Columbia and Massachusetts, John Gonzalez, an O'Melveny associate licensed to practice law in California, and Emme M. Tyler, an O’Melveny associate licensed to practice law in California, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.
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