An Unexpected Dispute Delays the DOJ’s First No-Poach Conviction and Other Recent Developments in its Labor-Market Antitrust Prosecutions

Patterson Belknap Webb & Tyler LLP

The DOJ’s efforts to prosecute alleged wage-fixing and employee non-solicitation agreements have continued to develop over the last few months.  (Check here for our previous coverage of this prosecution trend.)  Most notably, the DOJ nearly secured its first criminal conviction on a no-poach charge, as a defendant in United States v. Hee expressed its intent to plead guilty to a Sherman Act offense–until a dispute about an element of the offense at the change-of-plea hearing led the court to ask for briefing on that issue before entry of a guilty plea.  Meanwhile, in what could prove an interesting test case, a group of indicted aerospace-industry officials have moved to dismiss their indictment on the basis that their alleged no-poach agreement was part of a vertical customer-supplier collaboration.  The DOJ also has been active in civil labor-market antitrust cases: it reached an $85 million settlement in connection with alleged wage-fixing in the poultry-processing industry and it filed a statement of interest in a private plaintiff’s suit against trucking companies. 

Unexpected Plea-Hearing Dispute Delays the DOJ’s First Labor-Market Criminal Antitrust Conviction

In Hee, the DOJ charged VDA OC LLC (“VDA”), a healthcare staffing company, and its regional manager, Ryan Hee, in Nevada federal court with a single count each of violating Section 1 of the Sherman Act by conspiring with another firm to not poach each other’s nurses and to fix their wages.  VDA and Hee both moved to dismiss the case on the basis that wage-fixing and no-poach agreements are not a crime.  Hee also accused the DOJ of misconduct for not disclosing its criminal investigation when an FBI agent interviewed him without his counsel present and obtained his written consent to copy the contents of his electronic devices.  U.S. District Judge Richard F. Boulware III stated at a status conference in May that he intended to deny the motions to dismiss, but has not yet issued a ruling.  Then, in June, VDA and Hee asked Judge Boulware to postpone a hearing on Hee’s motion to suppress his statements to the FBI because they had reached a “preliminary resolution” with the DOJ. 

At the end of August, VDA filed a notice with the Court of its intent to change its plea to guilty.  VDA stated that there was no plea agreement and that it planned to litigate all sentencing issues at a future sentencing hearing.  VDA also admitted that, through one of its employees, it had agreed with a competitor staffing firm to not hire nurses from each other or raise their wages.  The Court then held a change-of-plea hearing on September 8, at which VDA intended to plead guilty.  But the hearing derailed when the government recited the elements of the offense before the plea.  When the government’s attorney stated the alleged conduct must “substantially” affect interstate commerce, VDA’s counsel interrupted to contend that the elements do not  include the term “substantially.”  The government disagreed, and Judge Boulware directed the parties to confer on this topic and file additional briefs.  Judge Boulware then scheduled a new change-of-plea and sentencing hearing for January 6, 2023.  The Court also postponed a hearing (originally scheduled for next month) on Mr. Hee’s motion to dismiss.  That hearing will take place after VDA’s January 6 change-of-plea hearing. 

This dispute over the offense’s elements delayed what would have been the DOJ’s first conviction in a labor-market criminal antitrust case, coming on the heels of two well-publicized acquittals in other labor-market antitrust prosecutions in the spring.  Additionally, Hee has not indicated any intent to plead guilty despite having notified Judge Boulware in June that he and the DOJ had reached a “preliminary resolution.” 

We’ll be following whether the DOJ ultimately secures guilty pleas in this case.

Aerospace Executives’ Motion to Dismiss On the Basis That Their Alleged Agreement is Vertical

In United States v. Patel, the DOJ brought no-poach criminal charges in the District of Connecticut against a former manager at a jet-engine manufacturer and executives from several of the manufacturer’s outsourced engineering providers.  According to the indictment, the defendants agreed not to poach each other’s engineers who were staffed on the jet-engine manufacturer’s projects.  This is the DOJ’s first criminal prosecution of a no-poach agreement outside the healthcare industry.

The defendants moved to dismiss the case in June.  They argue the alleged agreement was not anticompetitive and is distinct from prior criminal no-poach cases because it was a vertical agreement that “further[ed] a legitimate customer-supplier business collaboration,” rather than a horizontal agreement between business competitors (see, for example, the alleged agreement among kidney dialysis providers in United States v. DaVita).  In the Patel defendants’ view, the collaboration was legitimate because it only “covered specific employees working on specific projects” and enhanced the jet-engine manufacturer’s competitiveness against its rivals by giving it “increased control over the planning and execution of projects and delivery cycles and flexibility in the management of its labor expense.”  A staffing-agency association and a human-resources association submitted amicus briefs on the defense’s behalf.  They contend that it is pro-competitive for a manufacturer to hire multiple staffing agencies and to ask the staffing agencies to avoid disrupting each other’s services to that manufacturer. 

In its opposition to the motion, the government asserts that whether the alleged no-poach deal furthered a legitimate collaboration is a question of fact reserved for trial and cannot justify dismissing the indictment.  Additionally, the government acknowledges that only horizontal restraints of trade are per se anticompetitive, but maintains that the no-poach deal at issue in this case is in fact horizontal because it is between direct competitors in the labor market.  Per the government, it does not matter that the jet-engine manufacturer and the engineering providers have a vertical business relationship; the government contends the challenged deals are nevertheless horizontal because the manufacturer competes directly with the engineering providers for labor. 

We’ll be watching to see how the court rules on the motion to dismiss. 

DOJ Actions in Civil Cases

The DOJ has been active in civil labor-market antitrust cases as well.  In United States v. Cargill, the DOJ reached an $85 million settlement in July with several poultry processors who allegedly shared information about their plant workers’ wages and benefits for many years, plus a data consulting firm that allegedly assisted them.  And, in a civil suit brought by truckers alleging that trucking companies conspired not to hire each other’s workers, the DOJ filed a statement of interest reiterating its position that no-poach deals are per se illegal. 

The DOJ appears determined to continue pursuing these labor-market antitrust cases in both the criminal and civil contexts, with thorny legal questions like those raised in Patel continuing to shape the field.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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