Key takeaways
- Over the past several years, U.S. antitrust agencies have renewed enforcement focus on labor issues, including agreements involving employee hiring and compensation. These include agreements by horizontal competitors to set wages and benefits or to not solicit or hire competitors’ employees.
- Despite an acquittal verdict earlier this year that could have set back the DOJ’s efforts to pursue such labor-side cases as criminal violations of antitrust law, the DOJ remains undeterred. Last week, the DOJ secured its first guilty plea in a case involving competing nurse staffing agencies. In the case, staffing company VDA pleaded guilty to agreeing with an unnamed competitor to allocate nurses between the companies through a no-poach agreement and to fix compensation through an agreement not to raise wages.
- The DOJ’s aggressive focus on labor-side antitrust issues now spans the last three presidential administrations with no signs of slowing down. Potential criminal penalties for agreements involving wages and hiring raise the stakes of compliance for companies. The employment context for these issues may also make them harder for traditional antitrust compliance programs to identify.
On October 27, 2022, The U.S. Department of Justice announced that VDA OC LLC, a health care staffing company, had pleaded guilty to a criminal violation of the antitrust laws for entering into a “no poach” and wage fixing arrangement with a competitor. The guilty plea marks a milestone in the DOJ’s multi-year effort to investigate and prosecute purportedly anticompetitive agreements in labor markets as criminal antitrust violations.
Criminal antitrust cases alleging conspiracies have historically focused on agreements between direct competitors to fix prices, rig bids, restrict output, or allocate products or markets. But over the past decade, public and private antitrust enforcement has increasingly also focused on agreements that restrict competition in labor markets, and specifically agreements between companies not to solicit or hire each other’s employees (so-called “no poach” arrangements), as well as agreements to fix employee wages directly or through information sharing.
While a handful of high-profile civil cases in the high-tech industry brought national attention to so-called “no poach” agreements in the early 2010s, the DOJ’s announcement in late 2016 that it intended to proceed criminally against naked wage-fixing or no-poaching agreements represented a sea change in enforcement approach. Once a relative rarity in civil enforcement, the DOJ’s renewed focus on labor-side antitrust violations has spurred increased public and private scrutiny and litigation involving agreements between employers.1
The DOJ’s efforts to challenge no poach arrangements as criminal violations have had mixed success in the six years since it announced its change in enforcement approach. It took more than four years before the DOJ filed its first criminal indictments, which concerned an alleged no poach arrangement in the healthcare sector in January 2021.2 Later in 2021, the DOJ announced indictments of a number of aerospace industry executives for entering into an agreement to not hire or solicit each other’s employees.3 Other indictments have followed.4 But earlier this year, the DOJ suffered a setback when a Colorado federal jury acquitted a healthcare company and its former CEO of criminal antitrust charges that they agreed with other health care companies not to recruit each other’s employees.5
Against this backdrop, the DOJ’s securing of a guilty plea from staffing company VDA in a no poach case signals that the DOJ’s efforts to pursue criminal no poach cases will not diminish and may start to see more success. VDA pled guilty to agreeing with an unnamed competitor, through one of its employees, to not raise nursing wages and to not hire nurses from each other between October 2016 and July 2017.6 The court sentenced VDA to pay criminal fines and restitution totaling $134,000 to affected nurses.
Key takeaways for in-house counsel
First, labor-side antitrust cases, including those related to employment such as no-poach, non-solicitation, or wage setting agreements, may be more difficult to identify under a traditional antitrust compliance approach. Companies accustomed to thinking about price fixing in the context of sales personnel staff might fail to train or monitor human resources professionals who can get entangled with labor-side agreements related to hiring and wages. Likewise, while criminal antitrust violations are generally reserved for “horizontal” arrangements between companies and their competitors, labor-side violations can lead to potential criminal liability between companies who might not see themselves as competitors in the marketplace. In no-poach arrangements, companies might be deemed “competitors” with respect to hiring employees even if they are not competing in the marketplace with the products they sell. Indeed, some of the high-tech labor-side antitrust cases—such as a case the DOJ pursued against eBay and Inuit—involved agreements between companies who might not normally think of themselves as competitors. As a result, a compliance regime focused exclusively on horizontal competitor contacts might miss the risks attendant in labor-side antitrust cases.
Second, the continued agency focus on labor-side antitrust cases means that violations are more likely to be discovered and prosecuted. Following the acquittal earlier this year in one of the DOJ’s first no poach prosecutions, Jonathan Kanter, the head of the Antitrust Division, emphasized that “we’re going to keep bringing these cases – we’re not backing down.”7 And there are multiple ways that labor-side antitrust violations can be discovered. The threat of criminal prosecution increases the odds that another party to the agreement will pursue amnesty under the DOJ’s leniency program, protecting themselves from prison time and fines in exchange for cooperating with the prosecution of co-conspirators.8 Moreover, the FTC has made clear its intention to examine labor and employment issues in the context of merger investigations.9 At least one recent no-poach case pursued by the DOJ was uncovered in the course of a merger investigation. In-house counsel should be aware that being subject to any kind of scrutiny from enforcers—even in unrelated matters such as merger investigations—could lead to follow-on investigations and potentially criminal consequences if the agencies find evidence of anticompetitive agreements regarding employment issues.
Third, criminal consequences for wage fixing or no poach arrangements raise the stakes of compliance. Criminal cases carry larger monetary penalties and jail time for violations, leading to potentially serious business disturbances beyond simple civil penalties. Indictments and guilty pleas can also spur private plaintiffs to use criminal enforcement as a springboard for private litigation that can further embroil companies in litigation in cases for years. The DOJ’s treatment of “naked” no-poach agreements as “per se illegal” under the Sherman Act also means that the DOJ will not entertain any arguments that the alleged agreements were procompetitive or otherwise justified for business purposes.10
Staving off these potential consequences requires compliance programs that are designed to identify and address these sorts of antitrust violations before they balloon into crisis. If larger companies are not scrutinizing their hiring and wage-setting practices for antitrust compliance, there is a risk that these cases can arise. As the VDA case shows, even one employee can entangle an entire company in potential criminal liability. Companies in the midst of designing or evaluating their antitrust compliance programs should take labor-side antitrust concerns into account to avoid running afoul of the DOJ’s stated enforcement priorities in the area.
Footnotes:
1 https://www.justice.gov/atr/file/903511/download
2 https://www.justice.gov/opa/press-release/file/1351266/download
3 https://www.justice.gov/opa/pr/six-aerospace-executives-and-managers-indicted-leading-roles-labor-market-conspiracy-limited
4 https://www.justice.gov/atr/case/us-v-faysal-kalayaf-manahe-et-al
5 https://www.dechert.com/knowledge/onpoint/2022/4/full-defense-verdict-in-rare-criminal-antitrust-prosecution-base.html
6 https://www.justice.gov/opa/pr/health-care-company-pleads-guilty-and-sentenced-conspiring-suppress-wages-school-nurses
7 https://www.reuters.com/legal/litigation/after-doj-antitrust-losses-employment-trials-defense-lawyers-urge-rethink-2022-04-22/
8 https://www.justice.gov/atr/leniency-program
9 https://www.ftc.gov/system/files/documents/public_statements/1599783/statement_of_chair_lina_m_khan_regarding_the_request_for_information_on_merger_enforcement_final.pdf
10 While fact-specific, restrictions on employment such as non-solicitation provisions that are ancillary to broader employer agreements might be analyzed under the more lenient “rule of reason.”
