DOJ Focus on No-Poach Cases Could Have Wide-Ranging Consequences for Managers

By Kelly Anderson August 11, 2021
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DOJ Focus on No-Poach Cases Could Have Wide-Ranging Consequences for Managers

​The Department of Justice (DOJ) is targeting illegal no-poach hiring agreements, a trend that employment experts say could have a lasting impact on how managers solicit employees.

No-poach agreements refer to illegal deals made between competitors not to hire or pursue each other's employees. Such arrangements can range from informal verbal agreements to written promises to avoid contacting a competitor's employees.

In the past, the DOJ has pursued civil penalties against companies that make such pacts. Recently, however, the department brought its first two criminal no-poach charges against companies that allegedly made agreements with competitors to keep wages low and refrain from soliciting each other's employees.   

In 2016, the DOJ and Federal Trade Commission (FTC) issued guidelines for HR professionals on how to avoid potential violations of antitrust laws related to the use of no-poach agreements.

The guidance noted that the DOJ could pursue criminal investigations, but the department did not do so until recently. The DOJ "will criminally investigate allegations that employers have agreed among themselves on employee compensation or not to solicit or hire each other's employees," according to the guidelines. "And if that investigation uncovers a naked wage-fixing or no-poaching agreement, the DOJ may, in the exercise of its prosecutorial discretion, bring criminal, felony charges against the culpable participants in the agreement, including both individuals and companies."

Responsibility for complying with competition laws falls mostly on managers, whose decisions related to hiring and nonsolicitation often form the core of no-poach litigation.

"It's not just about the executives in these types of situations. It can be much lower down into your organization," said Nicholas Gaglio, a partner at the New York office of Axinn, Veltrop & Harkrider, an antitrust law firm. "It can be plant managers, general managers or the people who know each other in the local markets that they tap for talent."

Gaglio said that illegal no-poach agreements are common in many industries where employees may misguidedly consider such an agreement as courteous or respectful to competitors and business partners. Low-level and midlevel managers have been the subject of DOJ action, however, which Gaglio said demonstrates the importance of ensuring managers are aware of developments in competition law.

Recent Indictments Mark Increased Enforcement of Antitrust Statutes at Manager Level  

The DOJ's Antitrust Division opened its first major no-poach case in 2010, when it filed civil complaints against several Silicon Valley companies—including Lucasfilm, Pixar, Google, Apple, Adobe and Intel—for instructing recruiting managers to enter into "no cold-call" agreements, in which the companies agreed not to initiate contact with one another's employees and to notify each other when making an offer to one of their employees. The settlements cost the defendant companies more than $400 million.

In the 2016 guidance, the DOJ and the FTC warned that the DOJ could bring criminal charges against managers, recruiters and C-suite employees who initiate no-poach agreements.

The DOJ followed through on that promise in January 2021 when it announced a grand jury indictment of Surgical Care Affiliates LLC (SCA), which operates outpatient medical care centers across the country. Prosecutors alleged that SCA violated Section 1 of the Sherman Act by agreeing not to solicit senior-level employees of competitors. The SCA case was the first time the DOJ had filed a criminal no-poach case.

Since then, U.S. attorneys general have continued ramping up enforcement. In March, Advantage On Call LLC, a health care staffing company in Las Vegas, was indicted after a manager allegedly agreed not to recruit or hire school nurses employed by a competitor.

The DOJ has also filed a series of amicus briefs and statements of interest arguing that courts should use the "per se" rule when companies enter "naked" no-poach agreements. A naked agreement is one in which the agreement is not considered reasonably essential to business collaboration. Under per se evaluation, all such agreements would be considered illegal regardless of intent or effect, meaning managers could be subject to prosecution even if they are unaware that certain hiring practices are illegal.

No-Poach Statutes Garner Attention as Prosecution Increases

Legal experts say the Biden administration's stepped-up action against no-poach agreements has put managers on alert.

"Awareness has spiked at the client level as the news of the criminal indictments hit," Gaglio said. "We certainly expect it to continue to be an area of enforcement focus throughout the Biden administration, so I think there is as good a reason as the HR community has ever seen to stay close to these issues."

Federal action has ramped up as antitrust enforcement increases at the state level. Washington state Attorney General Bob Ferguson reached settlements with 100 fast-food chains in July 2018 after alleging that the corporations had banned franchisees from hiring or recruiting the employees of other franchises. A wave of class-action lawsuits surrounding no-poach agreements in the SCA case and other similar cases has followed since then.

"I think antitrust attorneys and practitioners are recognizing that this isn't just an idle threat anymore," said Jessica Michaels, a partner in Mayer Brown's Chicago office. "Companies really do need to be vigilant about making sure they're not engaged in this type of behavior because we've seen now the first criminal cases, so we know that the DOJ is really willing and ready to bring these cases."

Compliance Efforts Should Focus on Educating Managers, Employees Involved in Hiring Processes

President Joe Biden recently issued an executive order encouraging the FTC to ban or limit noncompete agreements. The FTC has yet to issue any new rules in response, but employers should prepare for potential changes.

Employers generally use noncompetes to protect their proprietary information by preventing employees from working for competitors in a specific geographic area for a limited amount of time.

Companies are educating HR practitioners on no-poach laws to ensure compliance, according to Ann O'Brien, a partner at BakerHostetler who advises companies facing civil antitrust litigation.

"A lot of companies, when I'm working on antitrust training for them, are thinking of executives, managers and salespeople as recipients of antitrust training, but now they're thinking, 'Should I train the HR professionals, business development and professionals involved in hiring?' " O'Brien said.

She added that antitrust enforcement in employment law can be complicated; certain employment-related agreements and exchanges of information are legal, while others violate antitrust laws. Managers may face difficult questions about what hiring practices run afoul of the law if they are not properly informed.

"They could enter into an agreement that violates antitrust laws without having a full understanding of that if they're not trained," O'Brien said.

If a manager identifies an ongoing no-poach agreement, the best course of action is to obtain legal counsel as quickly as possible, according to Gaglio. Consulting with a legal team ensures the company can conduct an internal investigation under legal privilege and potentially utilize the DOJ's Leniency Program, which allows companies to avoid prosecution if they are the first to report antitrust violations.

"The stakes are just too high right now given the level of activities and these multiple kinds of enforcers that we have in the U.S.," Gaglio said.

Kelly Anderson is a freelance writer based in Washington, D.C. 

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