The State of 'No-Poach' Prosecution: Is It Just Like Market Allocation After All?

• Date: 01 April 2024
• Author: Perry A. Lange, Nana Wilberforce, Lauren Ige, and John W. O'Toole

C O V E R S T O R I E S The State of “No-Poach” Prosecution: Is It Just Like Market Allocation After All? PERRY A. LANGE, NANA WILBERFORCE, LAUREN IGE, AND JOHN W. O’TOOLE SINCE ISSUING THE OCTOBER 2016 ANTI-trust Guidance to Human Resource Professionals (“HR Guidance”) regarding potential antitrust violations in labor markets, the Antitrust Division of the Department of Justice (“DOJ”) has been largely unsuccessful in criminally prosecuting such cases. 1 The HR Guidance makes clear that DOJ views certain “naked” agreements that restrain competition in labor markets, including no-poach and wage-fixing agreements, as criminal violations of the antitrust laws. 2 Courts and juries in the cases tried thus far, however, have not shared that view. After releasing the HR Guidance, it took DOJ approximately four years to secure its first wage-fixing indictment in December 2020. 3 A flurry of five additional labor-related indictments followed in 2021 and early 2022. 4 In several of these cases, DOJ argued that no-poach agreements are effectively per se unreasonable market allocation agreements among competitors—a theory that repeatedly survived motions to dismiss. Despite success at the pleading stage, DOJ has failed to convince judges and jurors on the facts, and it has lost each of the four cases that were brought to trial. DOJ has successfully prosecuted only one labor case, United States v. VDA OC LLC and Hee , which resulted in a guilty plea, a $62,000 criminal fine, and a $72,000 restitution payment. The company manager agreed to a pretrial diversion agreement and 180 hours of community service. 5 Despite this record, Assistant Attorney General Jonathan Kanter stated in a September 2023 speech that DOJ is “just as committed as ever to . . . using our congressionally given authority to prosecute criminal violations of the Sherman Act in labor markets.” 6 Shortly after this statement, in November 2023, DOJ moved to dismiss its last pending criminal no-poach case, United States v. Surgical Care Affiliates— a case originally filed in January 2021. 7 DOJ moved for dismissal while a motion to dismiss was still pending, offering no explanation for its decision. In light of its recent trial record, DOJ may be reassessing its trial strategy in criminal labor market prosecutions. Only one criminal labor market case remains pending, United States v. Lopez —a case involving wage-fixing (but not no-poach) allegations. 8 Why have courts and juries been reluctant to find that the no-poach conduct alleged in these cases rises to the level of a criminal antitrust violation? In the cases that DOJ has brought to date, the rulings on motions to dismiss, the jury instructions, and the jury verdicts suggest that courts and juries are skeptical that non-solicitation and no-hire agreements are categorically criminal. Instead, courts and juries appear to be requiring DOJ to prove beyond a reasonable doubt that these agreements constitute per se illegal market allocations. In these cases, courts and juries seem to struggle with evidence of employee mobility among the alleged conspirators, because the evidence suggests that strict employee allocation may not have actually occurred in practice. In two cases, United States v. DaVita, Inc. and United States v. Patel , the courts required that DOJ prove both intent to allocate the labor market and “meaningful cessation of competition” for labor. 9 These outcomes raise the question: what is the proper antitrust standard for no-poach agreements? In the criminal cases, the rulings on motions and jury instructions suggest an approach that considers the intended purpose of the alleged agreements, the actual effects, and the relationship of the restrictions to other business purposes (e.g., ancillarity). Courts and juries appear to recognize that applying the traditional per se framework—i.e., naked market allocation—to non-solicitation agreements in the labor context may require a more nuanced approach than is required when dealing with traditional customer allocation. Background Despite acknowledging that no-poach agreements can constitute per se antitrust violations, courts and juries so far have been reluctant to convict defendants in these cases. An The authors are attorneys at Wilmer, Cutler, Pickering, Hale and Dorr LLP. The views expressed in this article do not necessarily represents the views of their firm or its clients. The authors’ firm represented DaVita, Inc. in the case United States v. DaVita, Inc. and Kent Thiry , Case No. 21-cr-0229 (D. Colo.). The authors thank Thomas Mueller and John Walsh for their invaluable insights and contributions. 1 2 · A N T I T R U S T analysis of this apparent tension, particularly in the DaVita and Patel no-poach cases, may offer insight into the future of no-poach prosecutions. In United States v. DaVita , Inc. , the first criminal trial for labor market allocation, 10 the DOJ charged kidney dialysis provider DaVita and its former CEO of entering into no-poach agreements with three competing healthcare companies—Surgical Care Affiliates (“SCA”), Hazel Health, and Radiology Partners. The DOJ alleged that DaVita and SCA agreed not to solicit each other’s senior-level employees. 11 DaVita and SCA allegedly monitored compliance with this agreement by requiring executives and senior-level employees to obtain approval from their current employer before moving to the other company. 12 In contrast to SCA, DaVita’s alleged no-poach agreements with Hazel Health and Radiology Partners were purportedly one-sided—i.e., these companies agreed not to solicit DaVita’s employees. DOJ did not allege strict no-hire prohibitions in any of the agreements. DOJ argued that these agreements were per se illegal restraints on trade under the antitrust laws. 13 In bringing the case, DOJ analogized the no-poach agreements to customer or other sell-side market allocation agreements, arguing that the defendants had agreed to allocate the covered employees by restricting the employees’ ability to move jobs. After a nearly two-week trial, the jury acquitted the defendants of all charges. In United States v. Patel, at the close of DOJ’s case-in-chief, the court acquitted the defendants of all charges under Rule 29 of the Federal Rules of Criminal Procedure, finding insufficient evidence to establish a per se violation of the antitrust laws. During the trial, DOJ argued that the aerospace firm Pratt & Whitney entered into a hub-and-spoke no-poach conspiracy with certain aerospace engineering subcontractors. 14 DOJ alleged that the companies restricted the hiring of engineers and other skilled-laborers, both as between Pratt & Whitney and each subcontractor, and also among the subcontractors themselves. 15 As part of the alleged conspiracy, DOJ asserted that the companies refrained from proactively contacting, interviewing, or otherwise recruiting potential applicants already employed by another company. 16 Unlike in DaVita , where the DOJ challenged only horizontal no-poach agreements, the DOJ in Patel challenged hiring restrictions among companies that had both horizontal and vertical relationships. 17 The Law in Motions to Dismiss In both DaVita and Patel , DOJ defeated motions to dismiss by arguing that the indictments properly alleged non-solicitation agreements that constituted per se illegal horizontal market allocation agreements. The DaVita defendants challenged the indictment, arguing that the alleged non- solicitation agreement did not rise to the level of a per se illegal horizontal market allocation. 18 Based on allegations that the co-conspirators entered into “an...