No-Poach, No Precedent: How DOJ's Aggressive Stance on Criminalizing Labor Market Agreements Runs Counter to Antitrust Jurisprudence.

• Author: Mack, Noelle
• Position: Dept. of Justice

1. INTRODUCTION

   When non-law-abiding citizens wonder whether their conduct is subject to criminal penalties, most turn to state and federal criminal statutes for guidance. Under antitrust law, potential wrongdoers must look to the Sherman Act--a broad "charter of freedom" requiring an unusual level of interpretation by federal courts. (1) Reflecting Congress' belief that "competition is the best method of allocating resources in a free market," (2) the Sherman Act simply outlaws "every contract, combination, or conspiracy in restraint of trade or commerce." (3) The drafters of the Sherman Act could have delineated specific categories of proscribed conduct such as bid-rigging, price-fixing, or entering into no-poach agreements, yet the Act says nothing at all to this effect. (4) Instead, Congress left the task of construing the Sherman Act's vague mandate in the hands of the courts, forcing them to determine what conduct is prohibited under the Act on a case-by-case basis. (5) While the judiciary has made significant headway in defining the contours of unlawful behavior in consumer markets over the past century, a dearth of precedent concerning the labor market has left employers with little to no notice as to what may constitute illegal behavior in the labor market. (6)

   Despite this gap, antitrust policing of labor markets has continued to increase substantially in recent years, with particular scrutiny of agreements between employers not to recruit or solicit one another's employees--often called no-poach agreements. (7) Although these agreements have been the subject of debate in recent years, the U.S. Antitrust Agencies, which include the Federal Trade Commission ("FTC") and the Antitrust Division of the Department of Justice ("DOJ"), first issued formal Guidance in 2016 indicating that DOJ would criminally prosecute no-poach agreements. (8) Until that point, the agencies focused only on civil enforcement, and courts therefore analyzed challenged no-poach restraints under the rule of reason. (9) The new Guidance has led to reinvigorated agency investigations and settlements, new waves of private litigation, and, just in the past year, criminal indictments. (10)

   This Note explores DOJ's increasingly aggressive criminal enforcement of no-poach agreements in labor markets and the pressing uncertainty regarding how courts will analyze such agreements. Part II explains the development of an analytical framework for antitrust violations in labor markets. Part III describes the Antitrust Agencies' 2016 Guidance and DOJ's subsequent efforts to prosecute no-poach agreements as per se illegal. Thereafter, Part IV discusses the absence of the notice or judicial precedent required to substantiate criminal prosecutions of no-poach agreements under antitrust law, and DOJ's failure to acknowledge the procompetitive benefits of no-poach agreements.

2. LEGAL BACKGROUND

   Since the passage of the Sherman Act, the Supreme Court of the United States has recognized that Sherman Act cases are far too complex for the judiciary to resolve with strict adherence to a literal reading of the statute's text. (11) Early on, the judiciary rejected a plain reading of the statute's language when courts reasoned that because every contract restrains trade to some extent, not every conceivable contract or combination is prohibited by the Act--only those that unreasonably restrain trade. (12) The Act, however, provides little direction beyond this. Courts recognized that without parameters, corporations and individuals would be left with little guidance in predicting what constitutes legal and illegal action under the Sherman Act. (13) As such, the judiciary has spent more than a century attempting to assess liability in individual cases through the application of common law standards. (14)

   1. Developing an Analytical Framework

      Courts generally assess potentially anticompetitive conduct under one of two standards. (15) The primary mode for determining the reasonableness of a restraint is the rule-of-reason analysis. (16) Under the rule of reason, a court looks at various factors--including the history of the challenged restraint--and then weighs the procompetitive justifications against the anticompetitive effects of the business practice in the relevant economic and geographic market. (17) Most critically, there is no presumption of unreasonableness. (18) The plaintiff bears the burden of showing anticompetitive harms, after which the defendant may show offsetting procompetitive benefits. (19)

      By contrast, the per se rule condemns a business practice as a matter of law without any further consideration of procompetitive benefits. (20) It assumes an irrebuttable presumption of unreasonableness. (21) Defendants can only proffer procompetitive effects as justification in limited instances, such as when they can demonstrate that the challenged restraint is ancillary to any anticompetitive harms. (22) Historically, courts have treated horizontal price-fixing, horizontal market allocations, and other concerted actions as per se illegal. (23) Because the per se rule forecloses inquiry into the justifications or procompetitive effects of a restraint, the Supreme Court has strictly limited its application to conduct that is manifestly anticompetitive and on its face lacks any redeeming virtue. (24) For this reason, DOJ only criminally prosecutes conduct considered per se illegal. (25) With the stakes so high, the Court has held that "[i]t is only after considerable experience with certain business relationships that courts classify them as per se violations of the Sherman Act." (26)

      Nevertheless, the practical effect of whether the rule of reason or per se rule applies has profound implications for the outcome of an enforcement action. (27) In criminal prosecutions, for example, a judicial finding that a defendant's conduct should be evaluated under the rule of reason effectively amounts to a dismissal, whereas a per se rule severely limits a defendant's opportunity to defend her actions. (28)

   2. Criminal Liability Under the Sherman Act

      The author of the Sherman Act, Ohio Senator John Sherman, originally intended for the legislation to be a broad remedial statute, providing that anticompetitive agreements or cartel activity be subject to private litigation for double damages and civil forfeiture actions by the government. (29) After making its way through various committees in the House and Senate, however, the law that emerged--ripe with vague, undefined language--allowed for misdemeanor criminal liability if violated. (30) The bill's legislative history highlights concerns by various congressmen who recognized that the courts would need to define the broad terms of the statute. (31) In fact, the author of the House Judiciary Committee report on the bill admitted that neither he "nor any man could know just what contracts" will be barred by the law "until the courts determine." (32)

      For eighty-four years, the Sherman Act remained a misdemeanor statute. (33) Imprisonment was rare, imposed in less than four percent of DOJ's criminal cases, many of which also involved acts of violence. (34) There were, however, a few deviations from this norm. (35) In 1921, the first four individuals convicted for engaging in cartel activity reported to prison. (36) The defendants, all building contractors, each received a tenmonth sentence for their part in a bid-rigging scheme. (37) Then, in 1959, four individuals were each sentenced to ninety days for fixing the prices of hand tools. (38)

      During this same general period, the Supreme Court first formally articulated the per se rule in its 1940 decision in United States v. Socony-Vacuum Oil Co. (39) The Court in Socony-Vacuum stated that if defendants were allowed to argue over whether their alleged price-fixing restrained trade unreasonably, the Sherman Act "would not be the charter of freedom which its framers intended." (40) The defendants in the case were convicted, though the harshest punishment given to any individual defendant was a $1,000 fine. (41)

      The consequences for convicted criminal defendants in Sherman Act cases have since increased dramatically. (42) Reacting to inflation and public outrage regarding influence-peddling in the Nixon administration, Congress upgraded the misdemeanor penalty provision to a felony violation in 1974 and increased the maximum sentence from one year to three years. (43) Fines also increased to $1 million for corporations and $100,000 for individuals. (44) To better align the sentences with other white-collar crimes and ensure that corporate fines reflected the harm cartels inflict on the economy, (45) in 2004, Congress further increased the criminal penalties to a term of imprisonment of up to 10 years, and fines of $100 million for corporations and $1 million for individuals. (46)

   3. Labor Agreements Subject to Enforcement

      Antitrust law was designed to ensure the proper functioning of both consumer and labor markets. (47) In an effort to decrease long-term costs on the sell-side of the market, employers can exercise market power on the labor side--or buy-side--by implementing various types of agreements, though doing so may trigger antitrust violations. (48) Explicit wage-setting agreements with competitors and joint decisions allocating workers, (49) for example, decrease costs directly. (50) Other actions, such as no-poach agreements, (51) data exchanges, (52) or employer agreements regarding each other's non-competes, lower costs more indirectly by preventing workers from resigning in favor of higher paying jobs. (53) While some types of labor market agreements, like explicit wage-fixing, have always been condemned as unlawful the Antitrust Agencies and the courts have recently expanded their enforcement efforts. (54) The agencies argue that competition in the labor market provides actual and potential employees with higher wages, better benefits, and more...