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The Department of Justice Antitrust Division Brings First-Ever Criminal No-Poach CaseJanuary 22, 2021
Less than one month after announcing its first criminal wage-fixing case, the Antitrust Division of the Department of Justice (“DOJ”) has announced another first: a criminal indictment for a no-poach agreement. On January 5, 2021, a federal grand jury in the Northern District of Texas returned a two-count indictment charging defendants Surgical Care Affiliates LLC and its related entity (collectively, “SCA”), which own and operate outpatient medical care centers across the United States, with violating the Sherman Act by agreeing with competitors not to solicit each other’s employees. Count 1 alleges that SCA and an unnamed competitor agreed not to solicit specific senior-level employees, expressly instructed their employees to abide by the agreement, and refrained from soliciting each other’s employees in accordance with the agreement. The indictment describes multiple communications referencing the alleged agreement, including an email from the CEO of the unnamed competitor to employees stating, “I had a conversation w [the CEO of SCA] re people and we reached agreement that we would not approach each other’s proactively.” (SCA Indictment, ¶ 11(a)). Count 2 makes similar allegations about an agreement between SCA and a different competitor and quotes a number of express communications regarding the alleged agreement.
The DOJ previewed its intent to bring a criminal no-poach case more than four years ago, but it had not done so until now. In October 2016, the DOJ and FTC jointly released the Antitrust Guidance for Human Resource Professionals, which characterized “naked” no-poach agreements as per se antitrust violations. At that time, Acting Assistant Attorney General Renata Hesse said, "HR professionals need to understand that these violations can lead to severe consequences, including criminal prosecution.” In January 2018, Assistant Attorney General Makan Delrahim reiterated that the DOJ intended to criminally prosecute no-poach agreements. In April 2020, the DOJ and FTC issued a joint statement that they were closely monitoring anticompetitive conduct in labor markets, particularly for front-line workers during the COVID-19 pandemic, and that the DOJ “may criminally prosecute companies and individuals who enter into naked wage-fixing and no-poach agreements.” In addition to policy pronouncements, the DOJ has filed statements of interest in a number of private civil actions arguing for per se treatment of naked no-poach agreements. See, e.g., In re: Railway Industry Employee No-Poach Antitrust Litig., 2:18-mc-00798 (W.D. Pa. Feb. 8, 2019). State Attorneys General have also been active in this area and have advocated for per se treatment. Most notably, the Washington Attorney General has sought to end the use of no-poach agreements in franchise agreements nationwide and views no-poach agreements in the franchise context as per se illegal.
No-poach agreements are conceptually different from wage-fixing agreements because they are not one of the three types of anticompetitive conduct traditionally considered per se illegal—price-fixing, bid rigging, and market allocation. No-poach agreements can be lawful if they are ancillary to a legitimate transaction or collaboration. The DOJ has acknowledged this exception in statements of interest filed in private civil actions against fast food franchises for their use of no-poach agreements. In this case, the SCA indictment describes the alleged no-poach agreement as a conspiracy to “allocate senior level employees.” (SCA Indictment, ¶ 10). This suggests that the Antitrust Division will argue that the charged conduct is a traditional horizontal market allocation, subject to per se treatment, and does not fall within the legitimate transaction or collaboration exception. Although at least one court has suggested that a naked no-poach agreement could constitute a per se illegal market allocation, no court has ruled on the issue. See United States v. eBay, Case No. 5:12-CV-05869-EJD (N.D. Cal., Sept. 27, 2013), ECF No. 39.
The filing of a criminal indictment typically leads to follow-on civil actions. No-poach cases are no exception. On January 19, 2021, the first private follow-on civil action was filed in the Northern District of Illinois on behalf of a putative class of senior-level employees of SCA. See Roe v. Surgical Care Affiliates, LLC, Case No. 1:21-cv-00305 (N.D. Cal. Jan. 19, 2021), ECF No. 1. The Roe complaint relies heavily on the DOJ indictment and similarly alleges that defendants violated the Sherman Act by agreeing not to solicit or hire employees from one another.
The SCA indictment and last month’s wage-fixing indictment show that the DOJ intends to aggressively enforce antitrust laws in the labor context. This focus on labor is likely to continue in the new administration. As a candidate, President Biden specifically called for the elimination of “non-compete clauses and no-poaching agreements that hinder the ability of employees to seek higher wages, better benefits, and working conditions by changing employers.” Employers should be mindful of the potential antitrust risk involved in communications with competitors about wages or terms of compensation, no-poach agreements, and non-compete agreements. Similarly, employers should be wary of increasing hostility towards employee non-solicitation covenants. For example, while there is not yet binding case law, numerous courts have held that employee non-solicitation covenants are no longer enforceable under California law. See, e.g., AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., 28 Cal. App. 5th 923, 927 (2018); Barker v. Insight Global, LLC, No. 16-CV-07186, 2019 WL 176260 (N.D. Cal. Jan. 11, 2019); Six Dimensions, Inc. v. Perficient, Inc., 969 F.3d 219, 227-29 (5th Cir. 2020).
In addition, on December 23, 2020, President Trump signed the Criminal Antitrust Retaliation Act (the “Act”), which prohibits retaliation against employees who report internally or to the government any criminal antitrust violation, any act which an employee “reasonably believes” to be a criminal antitrust violation, or other criminal violation committed in conjunction with potential antitrust violations. The protection under the Act also extends to witnesses or others who assist a federal investigation or prosecution, but does not protect employees who participated in the criminal conduct or obstructed the investigation. The Act defines an “employee” broadly to include contractors, sub-contractors, and agents. A prevailing plaintiff in such cases is entitled to reinstatement with the same seniority status, back pay with interest, and an award of litigation costs and attorneys’ fees. Employers should ensure that they avoid engaging in any retaliation proscribed under the Act and expand their whistleblower policy, anti-retaliation policy, and employee training to address reports of criminal antitrust violations.
O’Melveny has robust antitrust and labor and employment practices and is prepared to assist clients in navigating this evolving legal landscape.
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