In their latest condemnation of labor market restrictions, state and federal enforcers, in two recent friend-of-the-court filings, urged the 2nd Circuit to reverse the dismissal of a no-poach case. On August 4, twenty-one state attorneys general and the U.S. Department of Justice Antitrust Division filed amicus briefs in Giordano et al. v. Saks & Co. et al., asking the 2nd Circuit Court of Appeals to revive antitrust claims asserted against Saks department store and other retailers by former Saks employees. The employees’ claims were dismissed by the district court in the Eastern District of New York in March of this year.
These are the latest of several government amicus briefs filed in private labor-related antitrust cases, asserting that alleged competitive restrictions on workers’ compensation, benefits and mobility should be scrutinized closely under the antitrust laws. They also reflect an emerging enforcement position on the Sherman Act’s statute of limitations – namely, that it should not bar actions against alleged anti-competitive agreements that began outside the limitations period but continued into it and caused continuing harm.
The Case
In Giordano, four former Saks employees alleged on behalf of a putative class that Saks and several fashion houses and other retailers violated Section 1 of the Sherman Act by agreeing that the brand retailers would not hire or solicit Saks employees unless: (1) the employees had not worked for Saks in the past six months; or (2) Saks gave the retailers permission to hire the employees. The plaintiffs alleged that this so-called “no-poach” agreement was per se unlawful because it restricted competition and had no procompetitive purpose. Alternatively, the plaintiffs alleged that the agreement was unlawful under the rule of reason because it did not relate to any other business agreement among Saks and the brand retailers, nor was it reasonably necessary to the efficacy of any other agreement.
The district court found that the plaintiffs had plausibly alleged a conspiracy among Saks and the brand retailers, but dismissed the plaintiffs’ claims on two grounds. First, the court held that all but one of the plaintiffs’ claims were untimely under the Sherman Act’s four-year statute of limitations. The court found that because three of the four plaintiffs started working at Saks in or before 2014, but did not file their complaint until 2020, their claims fell outside the limitations period unless the alleged conspiracy could be considered a “continuing violation.” Relying on US Airways, Inc. v. Sabre Holdings Corp., 938 F.3d 43 (2d Cir. 2019), the court observed that the defendants’ decision to enter the no-poach agreement marked the start of the limitations period, and that any refusal by the brand retailers to hire the plaintiffs thereafter was not an additional “overt act” in continuing violation of the Sherman Act, but merely a manifestation of the original overt act of entering the no-poach agreement. The court concluded, in essence, that the plaintiffs’ limitations period began either when the conspiracy began or when the particular plaintiff at issue was hired – whichever was later.
Second, the court held that, although the plaintiffs plausibly alleged the existence of a no-poach conspiracy, they nevertheless failed to show that the conspiracy was an unreasonable restraint of trade. The court acknowledged that no-poach agreements have been identified as per se unlawful but found that the no-poach agreement at issue was not, because it was part of a larger legitimate business collaboration among the defendants. Accordingly, the court characterized the no-poach agreement as an “ancillary” restraint – that is, one that relates “to the legitimate and competitive purposes of [a] business association” and is analyzed under the rule of reason. The court then analyzed the plaintiffs’ claims under the rule of reason, and despite finding plausibly defined relevant product and geographic markets, held that the plaintiffs had alleged “insufficient facts to support a direct adverse effect on competition” and failed to show that the defendants held market power in the relevant market. The plaintiffs appealed the district court’s dismissal to the 2nd Circuit.
Government Amici Curiae
On July 28, the plaintiffs filed their opening appeal brief. A week later, the Antitrust Division and a coalition of state attorneys general, including those of California, Illinois, New York and Washington, submitted separate amicus briefs arguing the district court had wrongly dismissed the complaint.
Both amicus briefs asserted that the district court misapplied the law on horizontal restraints to the defendants’ no-poach agreement. The enforcers maintained that no-poach agreements are per se unlawful horizontal restraints unless the defendants can affirmatively show that the restraints are ancillary – i.e., that they are: (1) subordinate and collateral to a separate, legitimate business collaboration; and (2) reasonably necessary to achieve any of the efficiency-enhancing purposes of that collaboration. The enforcers asserted that the defendants did not show – and the district court did not properly analyze – whether the defendants’ no-poach agreement was an ancillary restraint, and that the district court’s analysis rested on factual assumptions about the defendants’ business relationships that were improper to consider on a motion to dismiss. The enforcers suggested not only that the plaintiffs’ per se claims should have survived dismissal, but that the defendants may not be able to prove an ancillary restraints defense.
The state attorneys general’s brief highlighted a growing body of state law precedent and academic research suggesting that no-poach agreements have broad anti-competitive effects. Citing successful no-poach enforcement actions and settlement agreements from New York, Illinois, Washington and California, the state attorneys general asserted that labor markets should be treated like traditional product markets for antitrust purposes, and that the removal of horizontal labor restrictions – such as no-poach agreements – correlates with wage increases for previously restricted workers as well as increased worker mobility.
The Antitrust Division asserted that the district court misapplied the Sherman Act’s statute of limitations. The Division acknowledged the court’s reliance on US Airways, but sought to distinguish it from Giordano, noting that US Airways involved an agreement that, at its outset, “instantaneously” created a single, constant, horizontal trade restraint, while Giordano concerns an agreement that “endures” and did not necessarily injure affected parties as of the moment it was entered. The Division argued that this factual difference merits different applications of the statute of limitations – specifically, that the continuing violation doctrine should apply in Giordano, even though it did not in US Airways. Additionally, the Division argued that because the plaintiffs plausibly alleged a continuing violation and no statute-of-limitations defense was apparent from the face of the complaint, the plaintiffs who were hired at Saks before 2016 should be permitted to pursue their claims into discovery.
Observations
The Giordano amicus briefs highlight federal and state governments’ ongoing scrutiny of labor market restrictions. Criticizing the district court for its flawed application of the ancillary restraints doctrine, the briefs suggest a more rigorous consideration of the doctrine in connection with the no-poach provision at issue, and question whether the doctrine is appropriately considered at the motion-to-dismiss phase.
The briefs note that labor is an area in which state antitrust enforcement has gone further than federal enforcement. Although not every state has pursued labor restrictions to the same degree, it is clear that many of the twenty-one signatories to the state attorneys general brief have had recent success in labor-related antitrust enforcement actions and will likely pursue similar actions going forward.
Importantly, the briefs raise a growing procedural concern among enforcers with how the Sherman Act’s statute of limitations is applied in cases alleging continuing violations. The Division’s brief notes the tension between the 2nd Circuit’s decision in US Airways, which held that continued compliance with an anti-competitive contract’s terms was not an overt act sufficient to renew the limitations period, and prior cases like Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481 (1968), which held that enforcement of an anti-competitive contract that “inflicted continuing and accumulating harm” on a plaintiff could constitute an overt act sufficient to renew the limitations period. Enforcers will likely continue to advocate for a reading of the statute of limitations that permits tying the limitations period to conduct other than the inception of an anti-competitive agreement.
The Giordano briefs also point to an increasingly common practice among state and federal enforcers of weighing in on private antitrust cases where labor issues predominate. These efforts are not limited to Sherman Act cases; for example, in June the Antitrust Division submitted amicus briefs in two Illinois Supreme Court cases, supporting the Illinois attorney general’s enforcement position on wage-fixing and no-poach agreements under the Illinois Antitrust Act. In addition to filing amicus briefs, the Antitrust Division has also submitted statements of interest in cases addressing no-poach and noncompete arrangements, again in both state and federal courts. Statements of interest, which are authorized by federal statute, differ somewhat from amicus briefs in that they tend to lay out the Division’s position on how the law is applied, rather than advocating for particular outcomes as the briefs did here.
Briefing in the Giordano appeal will conclude in November, and the 2nd Circuit will decide these issues in due course. One thing appears constant: the Division and state attorneys general are not backing down anytime soon from their challenges to labor market restraints.
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