The DOJ Gets the Green Light in its Latest No-Poach Criminal Prosecution

It has been a tumultuous year for the Department of Justice (“DOJ”) and its recent no-poach criminal prosecution strategy.  No-poach agreements, which are arrangements between companies that place restrictions on the hiring of each other’s employees, have long been viewed as anticompetitive, as they have the potential to restrict employee mobility and wages in competitive markets. Historically, anyone challenging these agreements—including workers and the DOJ alike—did so through civil claims under the Sherman Act. But in 2016 the tide changed when the DOJ’s Antitrust Division, partnering with the Federal Trade Commission, issued guidance putting companies on notice that it viewed no-poach agreements and wage-fixing agreements as criminally anticompetitive and would investigate and prosecute this conduct as such. The notice acknowledged that these agreements may be legitimate, however, when related to “larger legitimate collaboration” or “legitimate joint ventures” between the employers, such as the shared use of facilities. This new labor-side criminal strategy has been slow out of the gate; the DOJ has yet to secure a guilty verdict. Still, the DOJ has not given up on its new approach.  There are several active prosecutions pending across the country, and earlier this month, a federal court in Connecticut denied a motion to dismiss—the latest judge to agree that there is a valid legal basis for these criminal charges.  Whether a jury will be convinced, however, remains to be seen.

The DOJ’s 2022 Track Record: No Guilty Verdicts for No-Poach Prosecutions

The DOJ began filing criminal no-poach and wage-fixing cases in late 2020.  In April of this year, juries dealt the DOJ’s Antitrust division back-to-back setbacks. First, in its first-of-its-kind wage-fixing criminal prosecution, the DOJ suffered a near-total loss in a federal district court in Texas. Although the jury found that one defendant—a former owner of a physical therapist staffing company—obstructed the government’s investigation, the jury acquitted the defendants of orchestrating a wage-fixing scheme. Just one day after the Texas verdict, the division received a second loss when a Colorado jury returned a blanket not guilty verdict for DaVita and their former CEO, Kent Thiry, charged with entering into no-poach agreements with three other companies.

In both cases, the respective judges had previously denied motions to dismiss.  In the case of DaVita and Thiry, U.S. District Judge R. Brooke Jackson acknowledged at the motion to dismiss phase that the agreements alleged could be found to be a per se antitrust violation—violating the Sherman Act regardless of their effects on the market.  At trial, however, Judge Jackson required that the DOJ prove beyond a reasonable doubt that the defendants entered into an agreement with the “purpose of allocating the market.”[1] Judge Jackson further instructed the jury that “[e]vidence of lack of harm or pro-competitive benefits might be relevant to determine whether defendants” had the required intent.[2] Whether the agreement had an anticompetitive purpose became the central issue of the case and ultimately proved too tall an order for the DOJ.

In October, the DOJ secured its first guilty plea in a no-poach case, when a health care staffing company pled guilty in Nevada federal court to a scheme agreeing with an unnamed competitor not to raise the wages of nurses in a particular region or hire nurses from each other. The staffing firm was required to pay a criminal fine of $62,000 and restitution of $72,000 for nurses affected by the activity.

Recent Activity: DOJ’s Case Against Former Raytheon Manager and Staffing Executives Will Go Forward

Earlier this month, in United States v. Patel, a Connecticut federal court declined to dismiss the criminal indictments of a former manager at Raytheon and five executives at outsourced engineering service providers for alleged utilization of no-poach agreements.[3] The indictment alleges that Raytheon and several unnamed companies entered into agreements not to hire or recruit each other’s employees, and that they did so because the defendants agreed that without these agreements, “salaries rise,” “no one wins,” and “our margins all get hurt.”[4]  Following other federal courts that have addressed the DOJ’s criminal no-poach arguments, U.S. District Judge Victor A. Bolden held that such conduct could per se violate the Sherman Act.[5]

Of course, the decision not to dismiss does not guarantee a guilty verdict. To do so, the government will have to overcome additional evidentiary hurdles. For example, Judge Bolden acknowledged that if the agreements are found to be “ancillary to a legitimate business collaboration” between the companies, they will only be illegal if the restraints they impose are deemed unreasonable. And, like the Colorado court earlier this year, Judge Bolden signaled that the DOJ may have to prove that the no-poach agreement operated with an anticompetitive purpose. In declining to dismiss the indictment, Judge Bolden relied on the DOJ’s allegations that the purpose of the agreements was to suppress competition and the agreements had in fact prevented engineers and other highly skilled workers from working for any other alleged co-conspirator’s companies.[6]

Whether the DOJ can prove these allegations at trial is its next test, and the case heads to trial in March 2023. Just weeks before the Patel trial, the DOJ’s Antitrust division will face an earlier test:  in March, United States v. Manahe is set to go to trial in Maine federal court, where the DOJ alleges that a home health care agency’s managers entered into no-poach and wage-fixing agreements for health care workers during the Covid-19 Pandemic.[7]  Given DOJ’s losses earlier this year, how these juries rule—and how the judges instruct them—could have a significant impact on DOJ’s criminal labor-side antitrust strategy going forward.

Regardless of the longevity of the DOJ’s criminal antitrust strategy, DOJ’s civil enforcement efforts against these arrangements is likely to continue. As noted above, these arrangements are often appropriate and defensible when related to a legitimate larger business collaboration between the employers.  Foley Hoag has counseled many companies about the use of no-poach agreements and recommended a variety of strategies for reducing antitrust risk associated with such provisions. Companies seeking to set up agreements with competitors involving recruitment should contact Foley Hoag about the appropriate use of these arrangements.

[1] United States v. DaVita Inc., No. 1:21-cr-00229-RBJ, 2022 U.S. Dist. LEXIS 16188, at *27 (D. Colo. Jan. 28, 2022) (emphasis added).

[2] United States v. DaVita Inc., No. 1:21-cr-00229-RBJ, Jury Trial Day 8, dkt. no. 293 at 115 (D. Colo. Jun. 16, 2022).

[3] United States v. Patel, No. 3:21-cr-220 (VAB), 2022 U.S. Dist. LEXIS 217330 (D. Conn. Dec. 2, 2022).

[4] Id. at *31 (quoting from the indictment).

[5] United States v. Jindal, No. 4:20-CR-358, 2021 U.S. Dist. LEXIS 227474, 2021 WL 5578687 (E.D. Tex. Nov. 29, 2021); United States v. DaVita Inc., No. 1:21-cr-00229-RBJ, 2022 U.S. Dist. LEXIS 16188 (D. Colo. Jan. 28, 2022). United States v. Manahe, No. 2:22-cr-00013-JAW, 2022 U.S. Dist. LEXIS 140154 (D. Me. Aug. 8, 2022).

[6] United States v. Patel, 21-cr-220, dkt. no. 257 (Dec. 2, 2022) (“Here, however, the no poach agreements has allegedly prevented engineers and other highly skilled workers from working for any of the other alleged co-conspirators’ companies that performing outsourcing work . . . . Indeed the Indictment alleges this was one of the purposes of the agreement.”).

[7] That case is United States v. Manahe, No. 2:22-cr-00013 (D. Me. filed Jan. 27, 2022).

Leave a Reply

Your email address will not be published. Required fields are marked *