Less Than a Month After DOJ Brings Its First Wage-Fixing Indictment, DOJ Brings Its First “No-Poach” Indictment

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In the past month, the U.S. Department of Justice (DOJ) has made good on its 2016 threat, contained in its Antitrust Guidance for Human Resource Professionals (“Antitrust Guidance”) to bring criminal charges against people or corporations who enter into naked wage-fixing agreements or naked no-poach agreements.   First, as reported here, on December 9, 2020, DOJ obtained an indictment against the president of a staffing company who allegedly violated Section 1 of the Sherman Act by conspiring with competitors to “fix wages” paid to physical therapists (PT) and physical therapist assistants (PTA).  Although not mentioned in the indictment, a related Federal Trade Commission (FTC) complaint alleged that the defendant agreed with competing staffing companies to lower wages after a client unilaterally lowered the rates paid to the defendant for PT and PTA services.  On January 7, 2021, DOJ announced a second indictment, which alleged that two corporations operating outpatient medical care facilities violated Section 1 of the Sherman Act by reaching “naked no poach agreements” with two competitors, pursuant to which they agreed not to solicit each other’s “senior-level employees.”

Both indictments allege that the employers entered into purportedly “naked” wage-fixing and no-poach agreements, which are illegal per se, and thus are “deemed illegal without any inquiry into [their] competitive effects.”  If the courts allow DOJ to proceed on the illegal per se theory, this will significantly lighten the government’s burden of proof because it assumes the anticompetitive and unlawful character of the agreement.  In civil enforcement cases and statements of interest, DOJ has consistently argued that no-poach and wage-fixing agreements are illegal per se.  Although DOJ has obtained several consent decrees which indicate that such agreements are illegal per se, civil cases generally resolve through settlement, and as the 2019 decision in In re Railway Ind. Employee No-Poach Litigation (W.D. Pa No. 18-798) recognizes, the law on this issue remains unsettled.  Thus, these criminal cases may provide a vehicle for setting standards to determine when wage-fixing and no-poach agreements are “naked” and whether such agreements are illegal per se or subject to the rule of reason analysis.

The indictments also serve as cautionary tales for HR and other executives.  They demonstrate that employers should exercise care in their communications about recruiting and compensation practices because both indictments demonstrate the role of electronic communications to prove the alleged agreements.  The wage-fixing indictment quoted several text messages, exchanged between the lone defendant and unindicted co-conspirators which allegedly resulted in an agreement to suppress wages.  The no-poach indictment also relied extensively on email communications, including internal communications between defendants’ employees, as well as communication between defendants and unindicted co-conspirators, such as competitors and recruiters.  Significantly, the majority of communications cited in the no-poach indictment occurred long before DOJ’s Antitrust Guidance, and thus indicate that DOJ will rely on such earlier conduct to bolster a prosecution.  Accordingly, employers should review their hiring and compensation practices to ensure that they comport with DOJ’s Antitrust Guidance and should amend any guidance that does not.

In addition, anyone who receives a civil investigative demand or grand jury subpoena from DOJ, or an inquiry from the FTC, concerning an antitrust violation should immediately consult counsel.  The Antitrust Division’s Leniency Program allows corporations and individuals who first “self-report” antitrust violations and “fully cooperate” with any DOJ investigation to avoid criminal prosecution.  Such self-reporting and cooperation should always be done with the guidance of counsel, as there are always risks associated with communicating with any government investigative agency.   Indeed, the second count of the price-fixing indictment alleges that the defendant violated 18 U.S.C. § 1505 by making misleading statements and withheld documents during the course of the related FTC investigation.  Promptly consulting counsel may help avoid or limit liability.

Finally, the upcoming change of administration is not likely to dampen DOJ’s enthusiasm for pursuing antitrust enforcement actions against employers. To the contrary, DOJ brought several civil enforcement actions against employers during the Obama Administration and as reported here, President-elect Biden has indicated that he favors eliminating “non-compete and no-poach agreement that do nothing but suppress wages.”  Of course, not every agreement is impermissible.  Even DOJ has recognized that no-poach agreements may be permissible in the context of legitimate joint ventures and in December 2020, DOJ filed an amicus brief that recognized that agreements between franchisors and franchisees are reviewed pursuant to a functional analysis.  Thus, the legality of agreements depends on the particular facts and circumstances.  Nonetheless, DOJ’s back-to-back indictments indicate that employers and recruiters should proceed with caution.  The time is ripe to review recruitment and compensation practices and communications, and to consult counsel to update them as necessary.

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