US DOJ Issues First Indictment for No-Poach Agreement

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In 2016, the US Department of Justice issued its Antitrust Guidance for Human Resources Professionals (Antitrust Guidance), in which it warned that criminal charges may result if corporations enter into “naked no-poach agreements.”
 

Naked no-poach agreements among employers are those that are separate from or not reasonably necessary to a larger legitimate collaboration between the employers. In the case of U.S. v. Surgical Care Affiliates LLC, et al., currently pending in the Northern District of Texas, the DOJ acted on its warning for the first time.

On January 5, 2021, the DOJ indicted Surgical Care Affiliates LLC (SCA) on two counts of Conspiracy in Restraint of Trade to Allocate Employees in violation of 15 USC §1. According to the indictment, SCA entered into long-term agreements with two separate competitors in Texas and Colorado in which they agreed not to solicit each other’s senior-level employees. SCA and the competing companies allegedly carried out the naked no-poach agreements from 2010 through 2017 by, among other things, agreeing not to proactively approach each other’s senior-level employees, instructing executives and recruiters not to solicit senior-level employees of each other’s companies, and requiring applicants from the competing company to disclose to their current employer that they were seeking other employment in order for the applications to be considered. The indictment stated that SCA’s activities implicated interstate trade and commerce because “the conspiracy would restrict the interstate movement of senior-level employees” between SCA and its competitors.

Key Take Aways

When the Antitrust Guidance was issued in 2016, the DOJ made clear that “[i]t is unlawful for competitors to expressly or implicitly agree not to compete with one another, even if they are motivated by a desire to reduce costs,” and “[a]greements among employers not to recruit certain employees . . . are illegal.” Such “naked no-poach agreements” are deemed per se illegal without any inquiry into competitive effect. Legitimate joint ventures, on the other hand, do not run afoul of the guidance. This indictment serves as a reminder to employers that they should exercise caution when taking actions that could be deemed anti-competitive, and assess and review their policies and agreements in this regard. 

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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