DOJ Drops Last ‘No-Poaching’ Case After String of Losses

The U.S. Department of Justice (DOJ) requested its sole remaining criminal no-poach antitrust case be dismissed, signifying that the department could be shifting away from its promised heavy enforcement of all no-poaching arrangements.

The U.S. District Court for the Northern District of Texas granted the DOJ's motion to dismiss the criminal charges it had brought against Surgical Care Affiliates (SCA) in January 2021.

The DOJ's Antitrust Division charged SCA, one of the largest outpatient surgery providers in the U.S., with entering into agreements with competitors not to poach each other's executive talent, in violation of federal antitrust law.

No-poaching agreements - when employers agree not to hire workers from one another - make it harder for workers to be recruited by their employer's competitors or negotiate better terms of employment.

It was the government's initial criminal no-poach antitrust case since the DOJ and the Federal Trade Commission issued a guidance document for HR professionals in 2016 stating that no-poaching and wage-fixing schemes were illegal and announced that they intended to pursue criminal charges against companies and individuals involved in those activities.

"The voluntary dismissal could signal that the DOJ is acknowledging that courts and juries have not accepted the theory that such arrangements should be treated as per se violations of the Sherman Act," said Sean McConnell, an attorney, and vice-chair of the Antitrust and Competition Group at Duane Morris, based in the firm's Philadelphia office.

"After several high-profile defeats, DOJ may have been concerned that its attempts to obtain per se treatment for certain labor market restrictions could have the unintended effect of raising the bar for the application of per se treatment generally."

In antitrust law, under the per se analysis, a plaintiff is only required to prove that specific anti-competitive conduct took place. The plaintiff does not need to demonstrate the conduct's competitive unreasonableness or negative competitive effects in the relevant markets. Defendants are not able to justify their behavior based on any objective competitive reasoning.

"[SCA] moved to dismiss the case, arguing that it could not be brought as a criminal matter because the government can only bring criminal antitrust charges over conduct that courts have previously found to be per se illegal, like price fixing or market allocation," McConnell said. "DOJ opposed the motion by arguing that certain no-poach or nonsolicitation agreements, like the one in the SCA case, effectively divvy up the labor market and constitute per se market allocation schemes. The defendants' motion to dismiss was still pending when DOJ moved to dismiss the indictments."

McConnell explained that a dismissal such as this is rare, and that the reason for it is unclear. "But the DOJ's program to criminally prosecute labor market violations has not gone well," he said.

After both the Trump and Biden administrations announced a committed focus on labor collusion, the DOJ has had a losing record of criminal prosecutions of alleged no-poaching agreements, said Charles Honart, an attorney in the Valley Forge, Pa., office of Stevens and Lee.

The DOJ in 2021 charged the dialysis provider DaVita and its former CEO with being conspirators in an allegedly illegal no-poach scheme, but the defendants were acquitted.

In 2022, the DOJ indicted managers of home health care agencies in Maine alleging that they had conspired to fix pay and not to solicit each other's workers. The defendants were acquitted by the jury in that case as well.

In another case, "U.S. v. Patel, employees of an aerospace company were accused of conspiring with the company's suppliers of outsourced labor to enter into a no-poach agreement that allegedly constituted a per se violation of Section 1 of the Sherman Act," Honart said. "At the conclusion of the trial, the defendants filed a motion for judgment of acquittal, which was granted by the U.S. District Court for the District of Connecticut."

Honart said that in granting the motion, "the court acknowledged that market allocations along with price fixing and bid rigging are subject to per se treatment but went on to state 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."

McConnell said the court in Patel held that a no-poaching arrangement must amount to a "cessation of meaningful competition" in a particular labor market to receive per se treatment. "DOJ may have been concerned that the court in [the SCA case] would affirm the holding in Patel and lead to even wider acceptance of a high standard for courts to apply per se treatment to labor market restrictions."

Employers that engage in stand-alone no-poach agreements - meaning there is no purpose for the agreement other than to restrict competition - are still vulnerable to criminal prosecution under the Sherman Act, said Carl Hittinger, a partner in the Philadelphia and Washington, D.C., offices of Baker Hostetler. "Companies still need to review their agreements and policies regarding recruiting carefully," he said. "Simply stated, companies should avoid entering into no-poach agreements without a sufficient nexus to a broader, legitimate relationship between employers that is necessarily limited to achieve the goals of that relationship."

SCOTUS May Weigh In

The U.S. Supreme Court may soon decide whether hiring restrictions between franchise operators in the same chain should be presumed subject to federal antitrust laws.

McDonald's appealed to the high court in November after the U.S. Court of Appeals for the 7th Circuit held in August that a lawsuit challenging a no-poach clause included in franchise agreements could proceed.

A group of former employees sued McDonald's over these restrictions in 2018, alleging they constituted a per se violation of the Sherman Antitrust Act. The district court rejected that argument, but the 7th Circuit vacated the judgment and remanded the case for further proceedings.