Are DOJ’s No-Poach Prosecutions Getting Poached?

By: Robert J. Anello

The Department of Justice’s Antitrust Division appears to have bitten off more than it can chew with its 2016 decision to criminally pursue cases of employers agreeing among themselves not to solicit or hire each other’s employees – so-called “no-poach” agreements. Since DOJ began prosecuting hiring restriction agreements as illegal market allocation arrangements for alleged harm to employees and competition, the Department has secured zero convictions in contested cases. Instead, thirteen defendants have been acquitted in four jury trials: an indication that perhaps these “criminal” cases are ill-conceived. DOJ’s track record indicates that jurors remain unconvinced that no poach agreements amount to criminal harm, and the Department’s latest loss demonstrates that at least one federal judge remains unconvinced as well. Late last month, after DOJ’s 5-week case-in-chief, a federal judge in United States v. Patel, et al. threw out charges against six executives for their alleged agreement not to hire each other’s engineers, finding that “no reasonable juror” could find defendants guilty based on the evidence presented. The Patel decision, which effectively raised the bar for the government’s standard of proof in no-poach prosecutions, may be the final push to motivate DOJ to change its aggressive approach.

The No-Poach Approach

Many companies have entered into no-hire or non-solicit type agreements with their competitors, but when the agreements have had an alleged anticompetitive effect on the market, companies traditionally have faced federal civil anti-trust charges. In 2016, the Antitrust Division announced that DOJ would change its approach and look to pursue criminal charges based on allegations that employers had agreed not to solicit or hire each other’s employees. The same approach would apply to agreements among employers to fix or constrain employee wages. In January 2021, DOJ brought its first prosecution of a no-poach hiring case on a theory that employers’ agreements with competitors not to hire each other’s employees constitute a labor market allocation and restriction on competition in violation of Section 1 of the Sherman Act.

As a matter of policy, DOJ has decided to pursue criminal charges only when per se liability applies, which is a standard of liability reserved for the most extreme anticompetitive arrangements. For the per se standard to apply, the government must prove that defendants entered into a qualifying agreement – to fix prices, rig bids, or allocate markets – that is presumed to violate antitrust laws. The alternative is a rule of reason standard that requires the government to show that the harm from the anticompetitive effect of the agreement outweighs legitimate business reasons or labor-side benefits. Since announcing its policy almost seven years ago, DOJ appears to have yet brought a case that convinces a jury (and now a judge) that employers’ hiring or wage arrangements are per se illegal, although DOJ has survived motions for dismissal of its per se cases.

Four indicted cases thus far have proceeded to trial: two in wage-fixing cases and two in no-poach cases (including Patel). After the Antitrust Division announced its policy in 2016, DOJ brought its first wage-fixing charges in December 2020 and proceeded to trial in April 2022. At trial DOJ failed to convince the jury that defendants, two employees of a healthcare staffing company, were guilty of conspiring with a competing staffing company to decrease therapists’ pay, although DOJ secured a conviction for obstruction of justice. The second wage-fixing jury trial ended in March 2023 when a Maine federal jury acquitted four home healthcare agency managers for colluding to fix caretakers’ wages during the COVID-19 pandemic. The only convictions DOJ has secured on wage-fixing charges have come from a pair of plea deals in the case of a healthcare staffing agency’s conspiracy to allocate school nurses and constrain their wages.

The first no-poach trial occurred in April 2022, resulting in a Colorado federal jury acquitting DaVita Inc., a kidney dialysis company, and its former CEO, on all counts of conspiring with other companies to suppress meaningful competition in the market. The jurors had been instructed by the judge in that case that the government must prove “actual employee allocation.” Although the DaVita case marked the first time no-poach charges made it to trial, DOJ indicted Surgical Care Affiliates LLC on no-poach charges in January 2021 for allegedly conspiring with other companies to restrict the services of senior-level employees through non-solicit agreements. The case against Surgical Care is currently pending in the Northern District of Texas. DOJ survived defendants’ motion to dismiss in the case, and it remains to be seen whether the case will proceed to trial.

Despite significant losses, the Antitrust Division has remained undeterred by its abysmal track record. Assistant Attorney General Jonathan Kanter responded to two back-to-back jury acquittals for wage-fixing and no-poach agreement charges last April by proclaiming that the Antitrust Division is “not part of the chickenshit club,” a reference to Jesse Eisinger’s 2017 book criticizing government prosecutors for failing to pursue white-collar charges against top executives due to a fear of losing the case. Following a March 2023 acquittal in United States v. Manahe, AAG Kanter renewed the Division’s resolve to prosecute these types of cases, calling no-poach and wage-fixing prosecutions “righteous cases” and maintaining that these arrangements do “real harms.” AAG Kanter’s characterization, however, seems to be at odds with DOJ’s inability to secure jury convictions for no-poach and wage-fixing criminal charges, with the Department’s only “wins” being two plea deals and one obstruction conviction.

Can Patel Be the Last Blow to No-Poach Prosecutions?

In United States v. Patel, the government charged six executives in a December 2021 indictment for an alleged hub-and-spoke conspiracy in which an aerospace company’s manager purportedly orchestrated an agreement among executives of outsource engineering services providers not to solicit each other’s engineers who worked on the aerospace company’s manufacturing projects. Defendants (one of which was represented by the author’s partner, Richard F. Albert) asserted, among other things, that any such arrangement had the legitimate business purpose of retaining skilled and trained engineers to complete, on time, the building of aircraft jet-engines. The DOJ disagreed and alleged that defendants entered into a no-hire arrangement to keep wages and labor costs from rising and robbing the engineers of job and negotiation opportunities. Specifically, the government charged that defendants’ restrictions on hiring “suppress[ed] competition by allocating employees in the aerospace industry working on projects” and essentially trapped engineers in their jobs, constituting a per se illegal restraint of interstate trade and commerce in violation of the Sherman Act.

Prior to trial, the Patel defendants moved for dismissal, arguing, among other things, that no-poach agreements are not per se unreasonable and the alleged agreement at issue was ancillary to a legitimate collaboration among the aerospace manufacturer and outsource suppliers. Like other courts that have considered the per se standard’s application to no-poach agreements and whether such charges violate the Due Process’s clause notice provisions, Judge Victor A. Bolden held that DOJ is not precluded from pursuing criminal charges for alleged no-poach agreements as a matter of law. The opinion was not all bad news for defendants, though; Judge Bolden rejected the Antitrust Division’s position that all no-poach agreements amount to market allocation agreements subject to per se treatment. Nevertheless, Judge Bolden found the indictment alleged sufficient facts for the parties to proceed to trial on a per se theory of liability.

During almost five weeks of trial, the government, as contended in its opening statement, attempted to show that defendants’ conspiracy to restrict the hiring and recruiting of engineers was “not an ordinary business decision,” but a “dirty secret…a crime” for defendants’ own profit. Tr. at 45:13-15 (Mar. 29, 2023). The government presented engineer-witnesses who were supposed to give testimony showing they were “trapped in their jobs…passed over for jobs they were qualified for.” Ironically, however, their testimony revealed high employee mobility and some procompetitive benefits throughout the alleged conspiracy period. In fact, all but one engineer-witness who testified ended up being hired by one of the provider companies. Tr. at 43:10-13 (Mar. 29, 2023). After the government rested its case, defendants moved pursuant to Rule 29 of the Federal Rules of Criminal Procedure for a judgment of acquittal based on insufficiency of the evidence presented by the prosecution.

The poor evidentiary showing by the prosecution led Judge Bolden to admonish the government for “tr[ying] to expand the common and accepted definition of market allocation in a way not clearly used before,” since even if a blanket no-hire agreement existed, the defendants apparently did not follow it at all times. Id. at *9 n.7. In what white-collar defense attorneys appreciate is a rare move, Judge Bolden granted defendants’ Rule 29 motion, finding that “[a]s a matter of law, this case does not involve a market allocation under the per se rule.” Id. at *5. In the end, the court sided with defendants that viewing the evidence presented in the light most favorable to the government, no reasonable juror could find the defendants guilty beyond a reasonable doubt because although defendants’ alleged agreement may have “‘constrain[ed]’ the applicants ‘to some degree,’” the government had failed to establish that the agreement allocated the labor market of the suppliers’ engineers “to any meaningful extent.” Id. at *9. The government’s evidence showed “so many exceptions” to hiring restrictions and the restrictions “shifted constantly throughout the course of the conspiracy.” Id. As a result the Court acquitted all six defendants.

The Patel ruling effectively may have raised the bar for the government’s standard of proof in per se cases, requiring that aside from the existence of a conspiracy, the government’s evidence must demonstrate that the alleged agreement allocated the market to such a “meaningful extent” that the conduct rose to the level of per se criminal anticompetitive behavior. Judge Bolden’s Rule 29 acquittal, in the eyes of some observers, also perhaps reflects poorly on DOJ’s judgment to even pursue criminal charges against the six executives in the first place.

A Cloudy Crystal Ball for No-Poach Prosecutions: What Does the Future Hold?

The Patel ruling is certainly a “black eye” for the Antitrust Division. Judge Bolden’s holding adds to the mounting pressure against the Antitrust Division to rethink its approach in no-poach and wage-fixing cases, but his analysis of the restrictions at play (or lack thereof) in defendants’ alleged scheme leaves open the possibility that a no-hire agreement without as many exceptions – a so-called “blank” no-hire agreement – may qualify in the future as a per se illegal. Additionally, even though DOJ has been unsuccessful at trial, the Department’s success in beating back motions for dismissal on criminal charges for anticompetitive conduct, as well as securing two plea deals, must not be overlooked. In the last two-and-a-half years, DOJ has indicted four companies and sixteen individuals, and has not indicated that it plans to slow down anytime soon. Although most defendants ultimately win, defending antitrust prosecutions is a complex and expensive process. Corporate counsel and companies must remain cautious about entering into or discussing with competitors no-poach or non-solicitation agreements.

One looming question is if the Antitrust Division attorneys will nonetheless hold true to their insistence that DOJ will continue to prosecute no-poach cases despite large losses. To remain consistent with the Biden Administration’s pro-labor focus on taking on big business, and AAG Kanter’s disclaimed membership in the “chickenshit club,” the Antitrust Division may persist in criminally pursuing no-poach and wage-fixing agreements. One thing is for certain – if the Division continues to investigate such schemes prosecutors will need to account for Judge Bolden’s ruling in Patel. Courts will expect DOJ to demonstrate enough evidence to prove that alleged hiring restraints were so restrictive and anticompetitive that they allocate a market to a meaningful extent. DOJ’s inability to prove as much in any of the cases brought thus far raises the question of whether DOJ needs to rethink its policy of criminally pursuing no-poach and wage-fixing arrangements.

To read more from Robert Anello, please visit www.maglaw.com.

Emily Smit, an associate at the firm, assisted in the preparation of this blog.