As we previously wrote, the Department of Justice’s (DOJ) April 2023 loss in United States v. Patel, its fourth in a criminal no-poach case, cast a pall over the agency’s enforcement efforts. The following month, the DOJ Antitrust Division sought to contain the fallout from Patel in another criminal no-poach case, United States v. Surgical Care Affiliates LLC, by arguing that the “astonishing” Patel decision (i) “was wrong as a matter of law,” (ii) conflicts with decades of Supreme Court and circuit jurisprudence, and (iii) would allow competitors to agree not to compete for employees “as long as the agreement does not altogether foreclose hiring or employee movement.” Despite the acquittal in Patel, the DOJ appeared ready to press on in Surgical Care.
That changed on Nov. 13 when the DOJ filed a motion to voluntarily dismiss the Surgical Care case, which the court promptly granted, ending yet another criminal no-poach case without a guilty verdict. The voluntary dismissal appears calculated to avoid another adverse ruling, and it comes during the pendency of a motion to dismiss and before jury trial proceedings commence. The motion did not provide a reason for the DOJ’s change of position other than “the conservation of this Court’s time and resources.”
Despite this latest defeat, don’t expect the federal enforcers to give up no-poach cases. For one thing, the DOJ’s poor conviction record reflects the difficulty of obtaining a criminal antitrust conviction on a novel conspiracy theory, including (i) a higher standard of proof, (ii) a reluctance of juries to dole out criminal penalties for prototypical antitrust claims, and (iii) the DOJ’s reliance on the per se antitrust standard traditionally applied in criminal cases, which courts generally refuse to apply unless, after considerable experience with the restraint at issue, they determine it would be irredeemably harmful to competition in all or almost all circumstances. The DOJ’s dismissal in Surgical Care may signal a pause to reassess and bide its time until a better case comes along.
Even if the DOJ opts to shelve its criminal toolbox for no-poach cases, the Federal Trade Commission (as well as the DOJ) has civil jurisdiction and could use its broad Section 5 authority to sue for “unfair methods of competition” or its relatively untested rulemaking authority to ban no-poach agreements (both of which would be subjected to judicial review in short order), as in the case of its proposed rule on noncompetes. State enforcers remain active, including the Washington Attorney General’s Office, which is largely responsible for a shift away from no-poach clauses in franchise agreements. And aggrieved workers are free to file private class actions against employers. As of publication, a leading fast-food franchise has petitioned the Supreme Court for a writ of certiorari to weigh in on the applicable test – per se or rule of reason – for assessing no-poach clauses in franchise agreements. In short, no-poach agreements must still navigate a legal minefield that remains in an unpredictable state of flux. Stay tuned.
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