Is No Poach No More?
On April 28, 2023, a federal judge dealt the most recent blow to the U.S. Department of Justice's (DOJ) efforts to criminally prosecute no-poach agreements by acquitting all six executives of antitrust charges during trial. The Connecticut district court judge in United States v. Patel took the unusual step of granting the defendants' motion for acquittal after the prosecution rested and before the defense put on its case. DOJ failed to prove that an illegal no-poach agreement had occurred. The court's ruling adds to DOJ's devastating track record at trial: zero convictions and acquittals of 13 individuals and one company on antitrust charges across four trials. DOJ's track record outside the courtroom has not fared much better: the Antitrust Division has secured only one guilty plea of a company and one resolution with an individual requiring no guilty plea or jail time.
Unlike the prior labor collusion cases, DOJ cannot blame its loss in Patel on an errant jury, as the judge ruled that the case was so weak that it could not even be sent to the jury. Collectively, these losses undermine DOJ's ability to successfully prosecute no-poach and wage-fixing cases in the future. The Patel ruling carries more weight because it challenges DOJ's grounds for bringing these criminal cases as a matter of law. It remains to be seen whether the Division will continue to pursue these cases criminally.
DOJ's Novel Decision to Pursue No-Poach and Wage-Fixing Cases Criminally
DOJ has traditionally pursued no-poach agreements that have violated federal antitrust laws civilly, not criminally. However, in 2016, the Antitrust Division issued Antitrust Guidance for Human Resources (HR) Professionals, warning that it would criminally investigate, and potentially prosecute, allegations of employers agreeing among themselves to set employee compensation or not to hire each other's employees. According to the Guidance, "[a]n agreement among competing employers to limit or fix the terms of employment for potential hires may violate the antitrust laws if the agreement constrains individual firm decision-making with regard to wages, salaries, or benefits; terms of employment; or even job opportunities." The Antitrust Division has portrayed no-poach agreements as illegal market allocation schemes subject to the criminal "per se" liability standard.
It took four years, but in December 2020, the Division brought its first criminal wage-fixing case in United States v. Jindal, charging two employees of a physical therapist management company with colluding to fix wages for physical therapists. Just one month later, the Division indicted its first no-poach case in United States v. Surgical Care Affiliates, LLC, charging the owner and operator of outpatient medical care centers with allegedly conspiring with other healthcare providers not to solicit each other's senior-level employees. In total, the Division has charged four companies and 16 individuals criminally for allegedly engaging in improper no-poach or wage-fixing schemes since DOJ issued its policy pronouncement.
DOJ's Lack of Success in Prosecuting No-Poach and Wage-Fixing Cases
The Antitrust Division has failed to obtain convictions both inside and outside the courtroom. Notably, the Antitrust Division has lost three back-to-back jury trials. In April 2022, following an eight-day trial, a federal jury in Texas absolved both defendants in Jindal of all wage-fixing charges, though one defendant was found guilty on an obstruction of justice charge. Just days later, a federal jury in Colorado acquitted a dialysis company, DaVita Inc., and its Chief Executive Officer (CEO) of all charges in the Division's first no-poach trial. In United States v. DaVita, the defense received a favorable pre-trial ruling requiring DOJ to establish that the purpose of the alleged no-poach agreement was to end competition — while typically in per se cartel cases, the government need only prove beyond a reasonable doubt that an agreement among competitors was reached. And in March 2023, in United States v. Manahe, a Maine federal jury cleared four home healthcare agency managers of allegations that they suppressed wages for essential workers during the COVID-19 pandemic.
The only guilty plea that the Division has obtained involved a Las Vegas nurse staffing company which pled guilty in October 2022 to conspiring with a competitor not to hire each other's nurses. A company manager who was charged with participating in the scheme subsequently entered into a pretrial diversion agreement to resolve the charges against him, which imposed no jail time. While the Antitrust Division touts this resolution in United States v. Hee as the first criminal penalty secured against an individual in a no-poach case, the highly unusual no-jail resolution without a guilty plea can hardly be viewed as a victory.
The Division repeatedly claims that it will continue to prosecute these labor-related collusion cases criminally. On the heels of the loss in Manahe, Assistant Attorney General Jonathan Kanter emphasized in a speech before the antitrust law bar in March that "wage-fixing and no-poach cases "are righteous cases and we will continue when the facts and the law support it to bring those cases." Soon thereafter, the Division indicted yet another executive in United States v. Lopez for allegedly conspiring with competing healthcare staffing companies to fix wages for nurses in Nevada.
United States v. Patel: Death Knell for No-Poach?
In United States v. Patel, a former Pratt & Whitney aerospace engineering company manager and five staffing company executives had been charged in December 2021 with reaching an illegal agreement not to hire each other's employees. The case survived a motion to dismiss in late 2022, allowing DOJ to proceed under the per se criminal standard but permitting the defendants to make arguments about the reasonableness of the conduct, specifically that it was "ancillary to a legitimate business collaboration.” After weathering a month-long trial that began at the end of March, the defendants moved for a judgment of acquittal after the government rested its case-in-chief but before putting on their own defense.
In a rare decision, the court granted the defendants' motion for acquittal, finding that the case was too weak to send to the jury. The court made all reasonable inferences in favor of DOJ but still concluded that the alleged no-poach agreement did not constitute a market allocation agreement as a matter of law. The court reasoned that because the alleged no-poach agreement had "so many exceptions," the requirements of which "shifted constantly," it did not allocate the relevant labor of engineers from the supplier companies working on Pratt & Whitney projects market "to any meaningful extent." The court further admonished that "[t]he government has tried to expand the common and accepted definition of market allocation in a way not clearly used before."
The judge questioned whether the Division's legal basis for bringing these criminal cases rests on solid legal footing. The court ruled that the anti-competitive conduct here, based on the evidence elicited at trial, did not fall within the per se criminal rule.
DOJ has repeatedly shaken off criticism of its poor trial record in these labor collusion cases and stood behind their decisions to bring criminal charges. In the Division leadership's view, no-poach and wage-fixing agreements harm workers and "the ability of hardworking people to find jobs. To earn a living wage." But if the evidence elicited at trial does not support this narrative, are these cases truly "righteous?" In Manahe, witness testimony revealed that nurse's wages went up after the defendants allegedly entered into a wage-fixing agreement, not down. And in Patel, all but one of the engineers who testified on behalf of the government at trial now work at one of the companies that they had applied to during the alleged conspiracy, strongly rebutting the argument that employees were harmed by any alleged no-poach agreement.
While the law may not require DOJ to prove anti-competitive effects on the market under the criminal standard of liability, three juries and a federal judge have signaled their unwillingness to convict individuals of a crime where they do not see harm to the employee. The judge's ruling in Manahe should be a cautionary tale to the Antitrust Division to rethink its strategy for pursuing labor collusion cases criminally, at least where it does not have a compelling story to tell at trial.
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