Healthcare Indictment Marks Justice Department's First Criminal No-Poach Case

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On January 7, 2021, the Department of Justice (DOJ) announced a grand jury indictment of Surgical Care Affiliates LLC (SCA) and a related entity, which own and operate outpatient medical care centers across the country. The indictment alleges SCA violated §1 of the Sherman Act by agreeing with competitors to not solicit senior-level employees. It marks the DOJ’s first-ever criminal no-poach case – more than four years after the DOJ and the Federal Trade Commission released “Antitrust Guidance for Human Resource Professionals,” warning, “the DOJ intends to proceed criminally against naked wage-fixing or no-poaching agreements.” Discussing the indictment, Assistant Attorney General Makan Delrahim remarked: “The charges demonstrate the Antitrust Division’s continued commitment to criminally prosecute collusion in America’s labor markets. . . . [T]he [antitrust] division will ensure that companies who illegally deprive employees of competitive opportunities are not immune from the antitrust laws.”

According to the indictment, SCA verbally agreed with competing companies A and B “to not poach [competitors’] folks.” The indictment alleges company A’s CEO stated in an internal email: “I had a conversation w[ith] [SCA’s CEO] re[garding] people and we reached agreement that we would not approach each other’s proactively.” Another time, the CEO of SCA purportedly instructed other executives: “We should continue to flag [company A] on our ‘do not call’ list to recruiters – i[t’]s OK if we get an inbound inquiry and the leader has communicated with [company A] that they want to leave, but outbound calls should not be occurring.” The agreement was allegedly policed with a notification mechanism. Companies receiving applications from employees of competitors required the applicants to notify their employer they were seeking alternative employment. In one purported email, SCA’s CEO explained, “our agreement is that we would only speak with senior executives if they have told their boss already that they want to leave and are looking.”

If convicted, SCA could face fines totaling $100 million, which could be increased to either twice the conspiracy’s illegal gain or twice the loss suffered by its victims if in excess of $100 million.

Here are three key takeaways from the SCA indictment:

  1. More than ever, compliance programs are vital: The SCA indictment shows that the DOJ intends to criminally prosecute a wide variety of agreements that restrict employee hiring, loosely referred to as “no-poach agreements,” not just outright hiring bans. The alleged SCA agreement forbade participating competitors only from proactively soliciting competitors’ employees and from hiring employees without notification to their employer. The indictment therefore raises the question: where will the DOJ draw the line between criminal and civil no-poach agreements? Compliance programs are an effective way to identify, assess and rectify potentially anticompetitive hiring practices before it is too late.
  2. The DOJ views the 2016 guidance as a hard line: After the DOJ in 2016 warned that it would proceed criminally against naked no-poach agreements, Assistant Attorney General Delrahim clarified that, “[a]s a matter of prosecutorial discretion,” criminal no-poach cases would only be brought for conduct “post-dat[ing] [the DOJ’s] October 2016 guidance” and that “the [DOJ] will pursue no-poach agreements terminated before October 2016 through civil actions.” The SCA indictment is notable because, although the alleged no-poach agreements at issue “continu[ed] until at least as late as October 2017,” the bulk of the alleged anticompetitive conduct occurred prior to the 2016 guidance. The indictment alleges that SCA’s non-solicitation agreements with companies A and B were struck in 2010, and all but two of the specific allegations of non-solicitation predate the 2016 guidance. This suggests the DOJ views the 2016 guidance as a line in the sand, rather than as a fulcrum to balance pre- and post-2016 conduct to determine whether the conspiracy should be treated criminally. If the no-poach conduct continued past 2016, it will likely be subject to criminal investigation and perhaps prosecution.
  3. The DOJ’s focus on labor markets is here to stay: Even with changing administrations, the DOJ will likely remain focused on labor-market competition, seeking criminal penalties where appropriate. President-Elect Joe Biden played a leading role in President Barack Obama’s efforts to rein in non-compete and no-poach agreements. In 2016, he chaired the Obama administration’s Middle Class Task Force, which aimed to “raise the living standards of middle-class, working families.” The Obama administration criticized employee no-poach agreements as a primary reason for wage stagnation, but the Biden campaign struck an even more uncompromising tone. In 2019, Biden tweeted: “It’s simple: companies should have to compete for workers just like they compete for customers. We should get rid of non-compete clauses and no-poaching agreements that do nothing but suppress wages.” His campaign website states that Biden “will work with Congress” to “outright ban all no-poaching agreements.”

The DOJ’s bellwether SCA indictment comes on the heels of a recent landmark wage-fixing indictment. This trend suggests there will be more labor-market indictments to come. Stay tuned.

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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