ANALYSIS: DOJ’s ‘No-Poach’ Charges Reach a Critical Juncture

The Justice Department has reached a pivotal point in its first wave of criminal complaints against companies and individuals that allegedly conspired to fix wages or to allocate the market for skilled employees, using agreements not to “poach” each other’s workers.

Several defendants in these cases have moved to dismiss the DOJ’s charges. In these motions, currently pending for decision before federal courts in Colorado, Nevada, and Texas, the defendants argue that allocating markets for labor isn’t a crime, and that the defendants couldn’t have known what they were doing was illegal.

If courts start granting these motions, the DOJ’s options for attacking anticompetitive conduct in labor markets could be seriously curtailed. But if the DOJ prevails, expect more defendants to plead guilty or enter agreements with the DOJ going forward.

Per Se or Not Per Se?

The government has alleged that these agreements between competitors are garden-variety market-allocation or price-fixing agreements: businesses agree secretly with direct competitors not to “poach” each other’s employees, which results in fewer job opportunities and hence lower wages for the workers. The government alleges these are no different from per se illegal agreements not to solicit each other’s customers, or to raise prices.

But these defendants contend that allocating markets for employees has never been held to be a “per se” violation of the Sherman Act—and that the DOJ therefore can’t just make it a crime by changing its policy about how these (apparently widespread) agreements between competitors are treated by enforcers.

The defendants are arguing that they didn’t have constitutionally sufficient warning that they were committing a crime. Each defendant argues, with some support from a powerful ally, that almost nothing counts as a per se violation of the Sherman Act that can support a criminal indictment. If a court hasn’t firmly established that the conduct is a per se offense that can warrant criminal charges, the defendants argue, then the defendants can’t be held liable for a crime.

The government counters that market allocation is a long-established per se offense, and creates the same competitive harms as a straightforward agreement to fix prices. The DOJ also contends that treating wages as a “price” is also established law. To support its position, DOJ has pointed to the November ruling in a wage-fixing case it brought at the end of 2020 holding that wage fixing is a per se offense.

But that case, alleging that competing medical staffing businesses agreed to set pay rates for physical therapists, involved fixing a wage rate directly rather than agreeing not to hire each other’s employees, which keeps rates down indirectly. Even so, the federal district court’s holding did note that “the scope of conduct found to constitute horizontal price-fixing agreements warranting application of the per se rule is broad.”

In other words, no court has yet held directly on the issue of whether the DOJ’s “no poach” indictments will withstand scrutiny. Whichever court first decides the issue will likely have a strong impact on logic used by the remaining courts.

Turning Point?

It’s healthy for a legal system when defendants can vigorously challenge criminal charges. It’s a continuing shame of our system that, generally speaking, only wealthy defendants have the wherewithal to do so. These defendants include some big companies: DOJ has brought criminal complaints against DaVita Inc., the largest dialysis provider in the U.S.; a former DaVita CEO; and a former director of global engineering services at Pratt & Whitney, a subsidiary of Raytheon Technology Corp. Vigorous defense is to be expected and encouraged.

It’s important to note, however, that if courts agree that the DOJ can’t bring criminal charges for wage fixing through “no poach” agreements, it would continue a long downward slope for per se offenses. The trend is, and has been for at least several decades, to consider most alleged antitrust offenses under the exhaustive “rule of reason” analysis, in which courts perform a balancing test to decide whether a particular defendant’s conduct actually harmed the market. These cases are long, expensive, and the outcome unpredictable—all of which further tip the balance of power toward big players with deep pockets in all antitrust actions.

With per se offenses, courts rely on a legal presumption that some conduct is basically always harmful to a competitive market. Price fixing and market allocation are two such types of conduct. Aren’t all types of market allocation or price fixing between horizontal competitors naked anticompetitive agreements? If we end up treating price fixing or market allocation against labor with less urgency than against other types of suppliers, it is worth asking what that says about our fundamental beliefs about how healthy markets function.

And it is also important to ask if the Sherman Act can be flexible when competitors find new ways to agree to raise prices. If not, it lends credence to the voices saying that only new legislation can shore up U.S. antitrust law. That’s not because the Sherman Act isn’t broad enough to charge “no poach” agreements—its language makes all agreements in restraint of trade felonies—it’s because the weight of judge-made law about the Sherman Act no longer fits with what its primary enforcers consider to be per se illegal conduct.

Watch for decisions in these cases in early 2022.

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