United States: Collaborate Away: Ninth Circuit Rules That Non-Solicitation Provisions In Collaboration Agreements Are Not Per Se Violations Of Federal Antitrust Law

A recent Ninth Circuit ruling in a dispute between two health care staffing agencies clarifies that non-solicitation provisions in business-to-business collaboration agreements are not per se violations of the Sherman Act. Aya Healthcare Services, Inc. v. AMN Healthcare, Inc. No. 20-55679, 2021 WL 3671384 (9th Cir. Aug. 19, 2021).

Background and District Court Proceedings

When hospitals and other health care facilities have nursing shortages, travel nurses provide a temporary solution. Health care facilities often turn to staffing agencies to recruit nurses for these assignments.

Both parties in this case are such staffing agencies. Defendant AMN Healthcare Services Inc. ("AMN") has been a leader in the health care staffing industry for over thirty years. As AMN's travel nurse business grew, its demand exceeded its staffing capacity. To fill their client's needs, AMN subcontracted with smaller health care staffing agencies, including the plaintiff, Aya Healthcare Services, Inc. ("Aya"). To become a AMN subcontractor, AMN required Aya to sign a collaboration agreement. That contract contained a non-solicitation provision prohibiting Aya from soliciting AMN's employees. Aya signed the agreement in 2010.

Allegedly, around May 2015, Aya began soliciting AMN's travel nurse recruiters. In December 2015, the parties terminated their relationship. In February 2017, Aya filed suit against AMN alleging violations of Sections 1 and 2 of the Sherman Antitrust Act. AMN moved for summary judgment. In May 2020, the district court granted summary judgment, ruling that the non-solicitation provision was an ancillary restraint that did not unlawfully restrict competition. Aya appealed to the Ninth Circuit.

The Ninth Circuit Appeal

The Ninth Circuit affirmed.

The Ninth Circuit framed the issue on appeal as whether a non-solicitation provision in a collaboration agreement constitutes a "naked" restraint on trade warranting a per se Section 1 violation. Aya argued it did. Alternatively, Aya argued that the non-solicitation provision violated Section 1 under a rule-of-reason analysis. The United States Department of Justice (DOJ) weighed in and filed an amicus  brief arguing that all naked non-solicitation agreements between market competitors are per se violations.

The Ninth Circuit rejected the arguments of both Aya and the DOJ. The Ninth Circuit explained that while Section 1 bars restraints on trade, courts distinguish between naked restraints and ancillary restraints. Naked restraints are explicitly anticompetitive. Ancillary restraints, while restraints on competition, are subordinate, collateral, and necessary to a legitimate transaction. Naked restraints are per se violations of Section 1, while ancillary restraints are evaluated through a three-step, burden-shifting, rule-of-reason factual analysis.

The Ninth Circuit then looked at the purpose of the non-solicitation provision and the broader market effects. The Ninth Circuit said that given the purpose of agreement was to supply travel nurses, the non-solicitation provision was necessary for AMN to ensure it would not lose personnel. AMN could not meaningfully enter into staffing subcontractor agreements without non-solicitation protections. Absent staffing subcontractors, there would be less nurses for hospitals facing chronic nurse shortages. Thus, the Ninth Circuit determined that the non-solicitation agreement was ancillary to the collaboration agreement and had important pro-competitive benefits for the health care market.

Key Takeaway

This case is notable because it highlights the tensions at the intersection of employment non-solicitation agreements and antitrust law. The case is significant because it stands for the proposition that solicitation agreements ancillary to larger collaboration agreements can serve legitimate pro-competitive purposes and do not necessarily violate federal antitrust law.

Notably, this new Ninth Circuit decision does not necessarily impact the separate and distinct prior decision of the California Court of Appeals in 2018 that involved AMN's non-solicitation provision in its agreements with its employees. See "California Appellate Panel Affirms Injunction Blocking Use of Employee Non-Solicitation Provision in Dispute Between Travel Nurse Providers," one of our recent blog posts on this topic.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.