Acquittal of No-Poach Defendants Aligns With Antitrust Principles

In the Department of Justice’s ongoing no-poach criminal action against Surgical Care Affiliates, its Antitrust Division attacked the recent decision in United States v. Patel, where US District Judge Victor Bolden granted defendants’ Rule 29 motion for judgment of acquittal.

The DOJ criticized the Patel decision as “ an assertion that two competitors can agree not to compete with each other at all through solicitations, and can agree on other restrictions to limit their competition with each other for employees, as long as the agreement does not altogether foreclose hiring or employee movement.”

With this approach, the agency has mischaracterized the law and facts set forth in the decision. Significantly, it ignores the important principle that, as Bolden explained, not all no-poach agreements are per se unlawful market allocations and making that determination “is highly fact specific.”

In acquitting the Patel defendants, Bolden held that, “As a matter of law, this case does not involve a market allocation under the per se rule,” based on the Second Circuit’s decision in Bogan v. Hodgkins.

In Bogan, the court held that an alleged agreement concerning hiring restrictions wasn’t a per se restraint of trade and wasn’t an allocation of suppliers because it allowed for transfers, applied only to a subset of individuals, and therefore did “not allocate the market for agents to any meaningful extent.”

In U.S. v. Patel, the government alleged that Pratt and Whitney and its engineering outsourcing suppliers allocated the labor market for engineers working on Pratt projects by agreeing not to solicit or hire one another’s engineering employees.

Applying Bogan, Bolden held that the government failed to establish an allocation of the labor market “to any meaningful extent” because the alleged agreement “had so many exceptions that it could not be said to meaningfully allocate the labor market of engineers,” and “the restrictions shifted constantly” throughout the course of the alleged conspiracy.

Bolden observed that ultimately, Pratt and competing outsource suppliers hired “many” engineers and “often hiring was permitted, sometimes on a broad scale.”

Many of the government’s own exhibits showed rampant hiring among Pratt and the supplier companies, and that the suppliers viewed Pratt as an independent actor that would ultimately make its own hiring decisions rather than be constrained by a market allocation agreement.

And the government’s own “victim” witnesses repeatedly undercut its position that engineers were trapped in their jobs and unable to advance their careers. Bolden recognized that “all but one of the engineers who testified during the Government’s case-in-chief now work at one of the companies that they had applied to during the time period of the alleged conspiracy.”

Other factors further support the judgment of acquittal, although Bolden didn’t expressly address them. First, the government alleged a relevant market for aerospace engineers limited to the defendants’ employees working on projects for the common customer Pratt, rather than a labor market encompassing engineers working for the hundreds of other companies in the US aerospace industry.

Episodic hiring limitations targeting only the defendants’ sliver of the market couldn’t have effected a market allocation “to any meaningful extent.”

Second, the defendants didn’t compete for the same pool of engineering talent because the outsource suppliers had different specializations, with QuEST for instance often hiring inexperienced individuals for less technical work. As defendants argued, “the labor market relationship between Pratt [] and its suppliers was … not lateral but a ladder.”

To that end, the trial was replete with instances of the government’s witnesses acknowledging that, far from hindering their careers, the experience they gained at QuEST provided a steppingstone to full-fledged aerospace engineering careers.

In addition to these findings, the court also recognized that “even if the government had presented evidence sufficient for the jury to find that Defendants entered into a market allocation agreement …, it still would not be entitled to present its case to the jury on a per se theory of liability without proving that the alleged agreement was in fact a naked, non-ancillary one.”

Although the court didn’t reach the defendants’ ancillary restraints argument, the evidence adduced at trial supported such a defense. It established that Pratt and its suppliers collaborated extensively in an ecosystem characterized by both vertical and horizontal relationships to achieve the safe and efficient manufacturing of jet engines.

The suppliers performed this work under demanding sales contracts and imposed the episodic hiring restrictions to minimize disruption and quality issues caused by significant attrition. Further, in addition to the teamwork inherent to the outsourcing model generally, there were numerous instances where groups of supplier companies engaged in horizontal collaborations to meet the needs of their common customer.

The government’s recent attack on the Patel decision is misplaced. Indeed, the vertical supply relationship between Pratt and its suppliers, and the evident legitimate business collaborations among the suppliers, were early signs that an enforcement action was inadvisable and that at a minimum a criminal per se charge was a bridge too far.

Bolden’s decision was legally sound and necessary to prevent a miscarriage of justice.

The case is United States v. Patel, 2023 BL 145113, D. Conn., 3:21-cr-220 (VAB), 4/28/23.

The authors represented defendant Harpreet Wasan, an executive from QuEST Global Services N.A., Inc., in the Patel action.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Philip A. Giordano is a partner at Hughes Hubbard & Reed and practices in all areas of antitrust law, including transactional matters before the Federal Trade Commission and Department of Justice.

Kristin Millay is counsel at Hughes Hubbard & Reed’s antitrust practice, assisting clients with civil and criminal matters.

Kiran H. Rosenkilde is a litigation associate at Hughes Hubbard & Reed and a member of the white collar and regulatory defense group.

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