After launching an initiative to combat no-poaching and wage-fixing agreements, the Department of Justice (DOJ) has racked up zero victories in its criminal prosecutions to date, including a recent loss in Connecticut.
In 2016, the DOJ issued guidance in conjunction with the Federal Trade Commission that outlined the government’s intent to ensure free and fair competition among companies when hiring employees.
The guidance focused on two types of illegal agreements: wage-fixing agreements, where companies agree on a specific level or within a range on employee salaries or other terms of compensation, and no-poaching agreements, where companies refuse to solicit or hire the other company’s employees.
In the years since, the Antitrust Division of the DOJ has pursued several criminal actions involving no-poaching and wage-fixing agreements, with little success.
The first three cases the DOJ took to court resulted in defense verdicts, two in April 2022. One case involved alleged wage-fixing involving physical therapists and assistants in Texas, while the second loss featured accusations of a no-poaching agreement between health care companies in Colorado.
Earlier this year, the jury acquitted four managers of home health care agencies in Maine in a case involving both wage-fixing and no-poaching claims.
The DOJ’s most recent effort didn’t even make it to the jury, with U.S. District Court Judge Victor A. Bolden granting the defendants’ motion for judgment of acquittal mid-trial.
Six aerospace industry executives were charged with violating the Sherman Act by conspiring to restrict the hiring and recruiting of engineers and other skilled-labor employees among their companies, from 2011 through September 2019.
The defendants moved to dismiss the charges, arguing that the alleged no-poaching agreement fell outside the categories of conduct that justified per se treatment. The government countered that a no-poach agreement pleaded as a market allocation is properly subject to the per se rule.
Given the stage of the case, the court denied the motion to dismiss. However, Judge Bolden noted that not all no-poach agreements are market allocations subject to per se treatment and therefore, determining whether a no-poach agreement is a market allocation is highly fact specific.
The case moved to trial. Following the government’s presentation, the defendants filed a motion for judgment of acquittal, which the court granted.
Under the Sherman Act, the per se rule recognizes that some types of restraints have such predictable and pernicious anticompetitive effect, and such limited potential for procompetitive benefit, that they are deemed unlawful per se, Judge Bolden explained. The per se rule is applied and a criminal prosecution is warranted only if the court can predict with confidence that the restraint at issue would be invalidated in all or almost all instances under the rule of reason.
Not all no-poach agreements operate as market allocation agreements, the court added, and the defendants argued that the government failed to prove the alleged agreement was one to allocate employees in a specific labor market, and that each of the engineers who testified (save one) were able to obtain new jobs in the aerospace industry.
The court agreed. A market allocation agreement requires cessation of “meaningful competition” in the allocated market, the court said, and the evidence presented by the DOJ showed that the engineers could transfer to other companies under certain conditions and that hiring was often permitted, sometimes on a broad scale.
“Under these circumstances, the alleged agreement itself had so many exceptions that it could not be said to meaningfully allocate the labor market of engineers from the supplier companies working on [aerospace] projects,” the court wrote. “[T]he agreement here, ‘while [it] may constrain’ the applicants ‘to some degree, it does not allocate the market for’ engineers or other skilled laborers from the supplier companies … ‘to any meaningful extent.’”
To read the ruling and order in U.S. v. Patel, click here.
Why it matters: The latest result in the DOJ’s initiative against wage-fixing and no-poach agreements adds to the government’s losing record in these cases and sends a message about the limits of criminal prosecution of market allocation agreements.