United States: DOJ Losses In No-Poach Prosecutions Mount, But Antitrust Caution Still Warranted

Highlights

• The inability of the U.S. Department of Justice (DOJ) to persuade juries to convict employers for allegedly entering into naked no-poach or wage-fixing agreements continues. On March 22, 2023, a jury in Maine acquitted four business managers of home health agencies of charges they entered into such agreements.
• Despite its inability to secure convictions, the DOJ has succeeded in establishing naked no-poach and wage-fixing agreements as per se violations of Section 1 of the Sherman Act and proper subjects of criminal prosecutions.
• The DOJ remains determined to continue prosecuting naked agreements that harm workers. Companies entering into agreements that might impact workers should continue to fully evaluate antitrust risks and not allow DOJ losses to let their guards down.

The Antitrust Division of the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC) have in recent years prioritized in their antitrust enforcement activities protecting workers from alleged anticompetitive agreements. The FTC's recent challenges to noncompete agreements between companies and their employees, along with a proposed rulemaking to ban all such noncompete agreements, are one facet of the agencies' efforts. Another has been the DOJ's aggressive attack on alleged wage-fixing and no-poach agreements between employers. Since 2016, when the DOJ first announced its intention to pursue criminal charges against employers entering into "naked" no-poach and wage-fixing agreements, the DOJ has pursued criminal charges against individuals and companies allegedly involved in these agreements,¹ and it continues to regularly prosecute additional companies.

The DOJ's message is clear: If you enter into agreements with labor-market competitors not to poach each other's employees or to cap wages, you run the risk of facing criminal charges for your conduct.

Complicating the DOJ's unmistakable message has been its inability to date to succeed in court in obtaining convictions in its no-poach prosecutions. Although it has established in court that no-poach agreements are per se violations of Section 1 of the Sherman Act and proper subjects for criminal charges, it has yet to convince a jury that any of the employers subject to its efforts actually entered into the agreements with which they have been charged. In spite of its lack of success, the DOJ remains undeterred in its enforcement intentions. Companies should proceed with great care before entering into a no-poach or non-solicitation agreement that they cannot defend as necessary to achieve the benefits of a broader, procompetitive collaboration and well-tailored to the purposes of that agreement. Particularly in the present enforcement environment, the proven ability of defendants to win criminal trials should not alter companies' risk assessments when contemplating agreements with labor-market competitors.

The DOJ and FTC's 2016 Policy Shifting Strategy in the Antitrust Labor Market

In 2016, the FTC and DOJ jointly released their new policy, which articulated the agencies' shared view that competition between employers for employees matters and that the agencies are committed to enforcing antitrust laws in labor markets. Even if companies do not compete in the products or services they sell to consumers but do compete to hire from the same pool of workers, efforts to restrict competition for those workers can subject the employers to antitrust scrutiny. The most notable aspect of the new guidance was the announcement that the DOJ intended to investigate "naked" no-poach and wage-fixing agreements as potential criminal violations of Section 1 of the Sherman Act.

Since 2016, the DOJ has engaged in aggressive efforts to transform that policy position into law. The DOJ brought its first criminal challenges to wage-fixing and no-poach agreements in late 2020 and has pursued additional prosecutions on occasions since then. Three cases have to date gone to trial, with all three criminal wage-fixing and no-poach agreement cases presented to the jury ending with jury acquittals.

The Curious Case of United States v. Manahe

In the most recent case, United States v. Manahe et al., No. 2:22-cr-00013 (D. Maine), the jury found four business managers of home health agencies not guilty of conspiring to fix wages and enter into illegal no-poach agreements.

The DOJ alleged that the four defendants entered into an agreement during the pandemic to fix the wages paid to personal care services workers and not to poach each other's workers. According to the indictment, the scheme occurred right after Maine health officials announced their plan to increase pay raises to personal support specialists.

Prior to the trial, the judge had sided with the government, ruling that the defendants could not rebut the DOJ's charges by offering evidence of good reasons for entering into the challenged agreements. The judge also denied the defendants' attempt to dismiss the case prior to trial based on various factual and legal claims.

Yet, after a two-week trial, the jury acquitted all four defendants.

Future of the DOJ's Policy in the Antitrust Labor Market

Despite its inability to secure convictions, the DOJ has established no-poach and wage-fixing agreements as per se violations of Section 1 of the Sherman Act and proper subjects of criminal prosecutions. In Manahe, the judge agreed with the DOJ that the "rule of reason" does not apply to this case. Instead, the wage-fixing and anti-poach agreements would be treated as per se violations under the Sherman Act, meaning that the government must prove only that the defendants entered into the alleged no-poach or wage-fixing agreement and not that the agreement actually harmed competition for workers. The court found that "the law is clear . . . that the reasonableness of the defendants' conduct in this case is not relevant to the issues before the jury."

Manahe follows a string of consistent rulings in other cases in which the DOJ survived dismissal, establishing for the DOJ the important principle that, merely because it had not previously pursued criminal charges for alleged no-poach agreements, it is not precluded from doing so as a matter of law. DOJ Assistant Attorney General Jonathan Kanter declared that these prior cases "were extremely important [in] establishing that harm to workers is an antitrust harm" and that "[t]hese are legally sound cases. . . .We want those decisions."

The DOJ's failure to convince any jury that defendants actually entered into such an agreement does raise some questions about future enforcement in this area. Proving the existence of naked no-poach or wage-fixing agreements might be more challenging than the government initially anticipated. Juries might remain skeptical that that these types of agreements justify criminal prosecution.

Best Practices for Clients

Although the DOJ has been unsuccessful in securing jury verdicts in its no-poach prosecutions, the agency remains undeterred and continues to pursue new indictments. In this enforcement environment, where protecting workers from anticompetitive agreements remains a clear priority, the prospect of winning a criminal trial after a long and painful prosecution should not encourage companies to let their guard down and take unnecessary risks. Employers should not enter into naked no-poach or non-solicitation agreements with one another – and should remain cautious about any discussions with competitors about employment-related issues, because those discussions could be misperceived as being undertaken in furtherance of such an agreement. When contemplating legitimate collaborative activities arguably necessitating some agreement concerning employee solicitation, companies should be prepared to articulate why the provision is necessary and how its breadth is justified.

To ensure compliance with antitrust laws, employers should remain informed of the changing legal landscape. To that end, employers should consider implementing or revising their antitrust and training policies to address the current antitrust risks.

Footnote

1. See, e.g., United States v. Neeraj Jindal and John Rodgers, No. 4:20-cr-00358-ALM-KPJ (E.D. Tex.); United States v. Patel et al., No. 3:21-cr-00220 (D. Conn); United States v. Manahe et al., No. 2:22-cr-00013 (D. Maine).

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