On March 6, the California Department of Justice’s (California DOJ) Antitrust Chief Paula Blizzard, announced at the American Bar Association’s National Institute on White Collar Crime that her office is planning to reinvigorate criminal antitrust prosecutions. California’s antitrust law, the Cartwright Act, prohibits practices that restrict commerce, prevent competition, or enter agreements that lessen competition. Blizzard touted that the Cartwright Act is “broader and deeper” than its federal counterpart, the Sherman Act. She conceded that the California DOJ has not brought a criminal prosecution under the Cartwright Act in 25 years, but she expects that to change.
Blizzard stated the California legislature intended the Cartwright Act to be broader than the Sherman Act and that she believes it is her duty to carry out the scope of the legislature’s intent. Criminal penalties under the Cartwright Act are severe and should serve as a strong deterrent to companies and individuals, should the California DOJ follow through on its promise to ramp up criminal enforcement. The Cartwright Act allows for criminal penalties resulting in fines of greater than $1 million for corporations and $250,000 for individuals (or two times the loss from anticompetitive conduct). Individuals can also face up to three years in prison.
The size of California’s economy — the fourth largest in the world — played a key role in the decision to increase the focus to combat anticompetitive conduct. California is home to a significant number of companies that do business across the U.S. (and the world), all of whom need to be aware of the Cartwright Act’s prohibition on anticompetitive conduct, including noncompetes and no-poach agreements. Not only are noncompetes and no-poach agreements illegal in California, but a new law also that took effect on January 1, further invalidates these restrictive covenants, regardless of where or when they were signed. Meaning, for companies that are headquartered in California but have employees in other states, noncompetes cannot appear in any employment contract. In fact, the new law goes as far as requiring companies to notify current or former employees employed after January 2022 that any noncompete provision that appears in their employment agreement is not enforceable.
The U.S. Department of Justice’s (U.S. DOJ) Antitrust Division’s Acting Chief of Criminal Enforcement Emma Burnham, spoke on how the state and federal agencies work together given the volume of antitrust enforcement across California.
The California DOJ’s announcement is hardly surprising, given that they are often at the forefront of enforcement and in light of the U.S. DOJ’s renewed focus on antitrust enforcement under the Biden administration. While the U.S. DOJ has suffered a series of high-profile losses in antitrust prosecutions, there is no doubt that criminal enforcement will continue to grow at both the state and federal level.
California companies, or those who do business in California, will need to ensure their employment agreements do not contain noncompete clauses and that they do not enter into no-poach agreements with competing businesses. Doing so risks not only a civil, but now criminal, investigation from either (or both) the California or U.S. DOJs. Legal and HR departments should work closely to monitor the evolution of antitrust enforcement and how it is impacting their business, and bottom line.
