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April 15, 2021 Articles

DOJ Turns Up Heat on No-Poach and Wage-Fixing Agreements

Employers must exercise extreme caution when discussing wages and hiring practices with competitors.

By Allison Reimann, Nina Beck, and Paul Covaleski
Private plaintiffs are bringing class-action complaints alleging anticompetitive harm resulting from no-poach agreements.

Private plaintiffs are bringing class-action complaints alleging anticompetitive harm resulting from no-poach agreements.

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Over four years after warning human resource professionals that agreements between competitors to fix wages or to restrict solicitation of each other’s employees, known as “no-poach” agreements, could result in criminal prosecution under antitrust laws, the U.S. Department of Justice Antitrust Division (DOJ) recently issued its first indictment for wage fixing, obtained in December 2020. On the heels of that indictment, in January 2021, the DOJ issued its first indictment for a no-poach agreement. Private plaintiffs are following the DOJ’s lead, bringing class-action complaints alleging anticompetitive harm resulting from the alleged no-poach agreement.

The DOJ’s 2016 Guidance for Human Resources Professionals

The 2016 Antitrust Guidance for Human Resources Professionals, jointly published by the DOJ and the Federal Trade Commission, delivered a stern reminder of the antitrust risks associated with anticompetitive agreements affecting labor markets, specifically wage-fixing and no-poach agreements between competitors that are not reasonably necessary to a broader legitimate collaboration (so-called naked agreements to restrain competition). The DOJ warned that it intended to proceed criminally against employers that entered into agreements of this type, explaining that “[t]hese types of agreements eliminate competition in the same irredeemable way as agreements to fix product prices or allocate customers, which have traditionally been criminally investigated and prosecuted as hardcore cartel conduct.” The agency, however, recognized that nonsolicitation and other agreements impacting employees may be appropriate when necessary to a larger collaboration between employers, such as a joint venture for shared facilities.

The guidance arose from a series of antitrust cases against Silicon Valley tech giants. In 2010, the DOJ sued Adobe, Apple, Google, Intel, and Pixar over alleged agreements not to “cold call” each other’s highly skilled employees. This, according to the DOJ, unlawfully restrained competition in the labor market. The parties entered into a settlement with the DOJ in 2011 that enjoined them from entering into agreements not to solicit, cold call, recruit, or otherwise compete for employees absent specified legitimate justifications. That same year, employees of these and other companies brought a class-action lawsuit on behalf of more than 64,000 employees, alleging that the companies had conspired to depress wages by refraining from poaching one another’s highly skilled employees, resulting in civil settlements in the tens to hundreds of millions of dollars.

Despite the strong warning to employers in 2016, years passed without the DOJ bringing criminal charges based on wage-fixing or no-poach agreements. That changed on December 9, 2020, when the DOJ initiated its first wage-fixing prosecution and then again on January 5, 2021, when it obtained its first indictment based on a no-poach agreement.

Recent DOJ Indictments

The December wage-fixing indictment was obtained against the president of a physical therapist staffing company that contracted with individual physical therapists to provide in-home physical therapy services to home health agencies. The defendant allegedly conspired with other, unidentified physical therapy staffing companies to obtain nonpublic rates paid to physical therapists. The conspiring companies allegedly used that information to enter into agreements to decrease the contracted rates they paid to physical therapists, and “implemented rate decreases in accordance with the agreement reached.” The indictment cites several text messages in which the defendant invited other physical therapy staffing companies to “collectively” lower therapists’ wages.

The January indictment alleges that outpatient medical facility Surgical Care Affiliates and its successor Scai (collectively, SCA) entered into “gentlemen’s agreements” with at least two different companies not to poach each other’s senior-level employees. The indictment cites numerous emails between human resource representatives and executives of SCA and the other two companies (identified only as Company A and Company B) specifically acknowledging the agreement and discussing several candidates who should not be approached or recruited because of the agreement.

That indictment alleges that the no-poach agreement was effectuated and enforced in several ways. SCA contacted recruiting agencies and instructed them not to solicit or contact senior-level employees of Companies A and B. SCA and the other companies also “monitored compliance . . . by requiring senior-level employees . . . who applied to the other company to notify their current employer that they were seeking other employment in order for their applications to be considered.” Finally, the companies agreed to, and did, alert each other when one of their employees applied for or inquired about employment at the other.

The conduct alleged in the recent indictments involves flagrant agreements to fix wages and not solicit competitors’ employees. In each case, the DOJ obtained communications acknowledging the agreement and illustrating that the conspirators were abiding by it. Hence, the indictments confirm federal antitrust enforcers’ willingness, in the right case, to pursue criminal charges for anticompetitive agreements impacting labor markets.

Up Next: Civil Class Actions

On the heels of the DOJ’s indictment, at least four complaints have been filed on behalf of putative classes of senior-level employees accusing SCA of conspiring with its codefendant competitors not to poach each other’s executives. The allegations mirror the DOJ’s indictment, including that the defendants’ no-poach agreement was a naked restraint on competition (i.e., served no legitimate business purpose) designed to depress wages.

In March, the DOJ moved to intervene and requested at least a nine-month stay of the class actions until the criminal case proceeds to trial. It remains to be seen whether the court stays the private actions considering the pending criminal case, but the filing of these civil actions provides an important reminder that the consequences of criminal antitrust enforcement extend beyond the criminal case itself.

Implications for Employers

While it also remains to be seen whether these indictments are outliers—the result of particularly egregious conduct—employers should take seriously both the criminal and civil consequences of agreements that limit competition for employees, fix wages, or otherwise unreasonably restrain competition in labor markets. At a minimum, employers must exercise extreme caution when discussing wages and hiring practices with competitors and must refrain from entering into any agreement governing wages and hiring, formal or informal. Likewise, counsel must be hypersensitive to this evolving environment and attuned to the heightened scrutiny and potential enforcement actions—and attendant private litigation—that clients may face concerning alleged wage-fixing and no-poach agreements.

Employers always should consult with antitrust and employment counsel before reaching agreements with competitors that may impact wages, benefits, hiring, retention, or working conditions of employees.

Allison Reimann is a shareholder and Paul Covaleski is an associate at Godfrey & Kahn, S.C., in Madison, Wisconsin. Nina Beck is an associate at Godfrey & Kahn, S.C., in Milwaukee, Wisconsin.

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