Raytheon Probe Signals Heightened DOJ Focus on Labor Antitrust

A Justice Department probe into Raytheon Technologies’ allegedly anticompetitive hiring practices portends more of the agency’s criminal enforcement in the labor market, attorneys said.

The move aligns with antitrust attorneys’ anticipation of the Biden administration’s increased focus on companies’ no-poach agreements that limit hiring others’ workers. The DOJ indicated as early as a 2016 guidance that such practices could be subject to criminal enforcement.

Raytheon Technologies Corp., a Waltham, Mass.-based manufacturer of military and aerospace products, revealed in February that it received a grand jury subpoena as part of a DOJ criminal investigation into alleged agreements to limit hiring between its jet-engine unit and some suppliers. The probe also sought information about the Collins Aerospace avionics business, acquired through Raytheon’s merger with United Technologies Corp., according to Bloomberg News.

Federal antitrust regulators, including the DOJ and Federal Trade Commission, are focused on the “impact of a merger on labor markets,” said Andrew Lacy, co-chair of Goodwin Procter LLP’s antitrust and competition practice. This underscores an “increasing focus on effects on workers from competition law violations.”

No-poach cases have been fought through civil actions in the past. But addressing them from an antitrust criminal angle is new.

The DOJ’s antitrust division “is very serious about these cases. In fact, I think they see them as kind of a next big thing in the criminal enforcement area,” said Donald Klawiter, a partner at Sterlington PLLC.

The agency’s 2016 guidance on this issue said the DOJ would be looking at no-poach agreements “as a naked restraint of trade, and therefore would be looking in the future to bring these cases criminally,” said Klawiter, a former Justice Department antitrust attorney.

Makan Delrahim, who led the antitrust division during the Trump administration, said in 2018 the division was working on those cases.

The DOJ filed its first criminal antitrust lawsuit over alleged wage fixing in late 2020 against a therapy staffing agency owner.

President Joe Biden issued an executive order in July 2021 that encouraged the antitrust agencies to go after anticompetitive labor practices, and was “very clear and definitive that the wages or salaries are no different than prices,” Klawiter said.

Raytheon appears to be making efforts toward compliance, but it’s also dealing with follow-on civil suits, said Elliot Silver, counsel in Goodwin Procter LLP’s antitrust and competition practice.

For other companies, the DOJ probe “puts a premium on stopping these things before they even start,” Silver said.

Companies should ensure that they don’t have similar no-poach agreements or understandings with competitors, Klawiter said. “I think it’s going to be like a wildfire,” he said.

Unique Relationship

Raytheon’s case is unique among no-poach agreements, attorneys said. Typically, the deals are struck between a business and its competitor. But the DOJ is alleging that Raytheon operated as a hub coordinating its suppliers to agree not to hire employees until they had been at their company for a certain amount of time.

Antitrust enforcement on hiring or recruiting often focuses on companies that are competing with one another, said Richard Feinstein, a partner at Boies Schiller Flexner LLP. But Raytheon and its suppliers are “not competing with one another necessarily” in products, but they may be in competition in the labor market, he said.

Raytheon didn’t respond to a request for comment.

The DOJ’s antitrust division addresses cases differently based on whether the parties striking no-poach agreements are in a horizontal or vertical relationship. Direct product market competitors are in a horizontal relationship. A company’s relationship with its supplier is vertical.

“I’m not sure that the sort of geometry of vertical versus horizontal really matters here. Because at the end of the day, the labor market is the same. They’re competing for the same types of employee talent,” Lacy said.

Investigators either believe the distinction between the type of relationship is “not important,” or that Raytheon’s relationship with its suppliers is “still essentially a horizontal relationship with respect to the labor market—in which case it’s not so unusual,” said Feinstein, former director of the FTC’s bureau of competition.

The DOJ has been clear that some narrowly tailored no-poach agreements can be permissible in a supplier or vendor relationship, where it’s ancillary and reasonably necessary, said Kristen Limarzi, a partner in Gibson, Dunn & Crutcher LLP’s antitrust and competition practice.

But the DOJ is alleging that Raytheon, as the hub of the conspiracy, appears not just to have agreed with their suppliers, but also organized an agreement among all the suppliers, said Limarzi, who previously served as the DOJ’s antitrust division section chief. That makes it difficult to claim that the agreement was ancillary, Limarzi said.

Companies could argue that a no-poach deal with a supplier wouldn’t be a crime because it’s a vertical relationship and should be judged by a different standard, Klawiter said. “You could probably make the argument and you might get some hearing from the court. I’m not sure at the end of the day you would prevail,” he said.

Raytheon may also argue that, as the purchaser of these vendors’ services, it’s “obviously interested in keeping costs down,” Lacy said.

“But it’s just not clear to me that that would be a viable argument” in a case that uses a per se standard—which means the act is presumed to be inherently illegal, Lacy said.