Employers who have entered into “no-poaching” agreements may find themselves criminally indicted for violating U.S. antitrust laws. Following up on previously issued guidance from the U.S. Department of Justice (“DOJ”) and U.S. Federal Trade Commission (“FTC”), the DOJ is bringing criminal indictments against two or more employers who engage in collusive and anticompetitive conduct, including wage-fixing, no-poach agreements, the exchange of competitively sensitive information and non-compete agreements. For example, in December 2020, the DOJ announced a federal grand jury returned an indictment against a former owner of a therapist staffing company for conspiring with competing therapist staffing companies to agree to lower wages for physical therapists. In January 2021, the DOJ announced a federal grand jury in Texas had indicted Surgical Care Affiliates LLC (“SCA”), a unit of UnitedHealth Group and the owner and operator of outpatient medical care facilities across the U.S., for entering into two separate conspiracies with other healthcare companies to suppress competition between them for the services of senior-level employees.
The SCA indictment is instructive. As evidence of the alleged agreements, DOJ’s indictment cites emails between SCA and the unnamed co-conspirators, including, for example, an email in which one co-conspirator’s CEO emailed its employees: “I had a conversation w [SCA’s CEO] re people and we reached agreement that we would not approach each other’s proactively.” Another email from a co-conspirator to SCA’s CEO states, “Just wanted to let you know that [recruiting company] is reaching out to a couple of our execs. I’m sure they are not aware of our understanding.” The indictment further contains allegations of the impact of the agreement, with an HR employee at one company emailing a recruiter, stating that although a candidate looked great, she “can’t poach her” because the candidate worked for SCA.
Most recently, on July 14, 2021, a federal grand jury in Denver returned a two-count indictment charging DaVita Inc. (“DaVita”) and its former CEO, Kent Thiry (“Thiry”), for conspiring with competing employers not to solicit certain employees. The indictment alleges that DaVita, which owns and operates outpatient medical care centers across the country, conspired with SCA and its related entity to suppress competition for the services of certain employees. Count One charges DaVita and Thiry for conspiring with SCA to allocate senior-level employees by agreeing not to solicit each other’s senior-level employees from as early as February 2012 until as late as July 2017. Count Two charges DaVita and Thiry for conspiring with another health care company from as early as April 2017 until as late as June 2019 to allocate employees by agreeing that the other health care company would not solicit DaVita’s employees. If convicted, DaVita faces a maximum penalty of a $100 million fine per count, and Thiry faces a maximum penalty of 10 years in prison and a $1 million fine per count.
These criminal indictments are informed by various guidance and alerts issued by the DOJ and the FTC as well as aggressive civil enforcement actions brought by the DOJ. In 2016 the DOJ and FTC issued guidance intended to warn human resource professionals and others involved in hiring and compensation decisions to potential violations of antitrust laws. (“2016 Guidance”). In its 2016 Guidance, the DOJ states that “[a]n agreement among competing employers to limit or fix the terms of employment for potential hires may violate antitrust laws if the agreements constrain individual firm decisions – making with regard to wages, salaries or benefits; terms of employment; or even job opportunities.” The 2016 Guidance was then followed up by a Joint Agency Alert in April 2020 (the “Alert”), during the spread of the COVID-19 pandemic, warning employers that the agencies are on “alert” and carefully observing the hiring, recruiting, retention or placement of workers to identify collusive and anticompetitive conduct, including wage-fixing, no-poach agreements, the exchange of competitively sensitive information and non-compete agreements.
The DOJ has previously been involved in numerous civil antitrust enforcement actions brought against several technology giants (eBay and Intuit, Lucasfilm and Pixar, and Adobe, Apple, Google, Intel, Intuit, and Pixar) that entered into “no poach” agreements with competitors. These cases ended in consent judgments against the technology companies. The FTC also brought cases relating to competition for employment, including a case against Debes Corp. for entering into agreements to boycott temporary nurses’ registries in order to eliminate competition among the nursing homes for the purchase of nursing services. Moreover, the DOJ also became involved in private “no-poaching” antitrust litigation. In Seaman v. Duke University, Duke ended up paying $54.5 million to settle a class action alleging a no-poaching agreement between Duke and the University of North Carolina. The DOJ filed a statement of interest in the litigation and the settlement included provisions for the DOJ to monitor compliance and enforce its terms.
Employers must be extremely careful before entering into no-poaching or wage-fixing agreements because they may very well be illegal under federal antitrust laws. Any agreement where one company agrees with another company not to compete for each other’s employees, such as by not soliciting or hiring them, is per se illegal. The bottom line is that any agreement that restricts the ability of employees to freely move or earn a living should be reviewed by competent counsel. This includes restrictive covenants like non-compete agreements, which are illegal in some states and subject to important restrictions in all others. Employers should carefully consider and implement such agreements with an eye towards compliance and litigation risks. Courts will only enforce non-compete agreements which are intended to protect trade secrets or confidential information, not reduce turnover or suppress wages.