For the first time ever, DOJ criminally indicts business for agreeing not to solicit another's employees

 For the first time ever, DOJ criminally indicts business for agreeing not to solicit another's employees

In 2016, the Department of Justice Antitrust Division and the Federal Trade Commission announced in its Antitrust Guidance for Human Resources Professionals that it intended to proceed criminally to enforce non-solicitation agreements between business competitors. In U.S. v. Surgical Care Affiliates and Scai Holdings, LLC (N.D. Tex. 2021), the DOJ finally carried through on that threat this year. Specifically, the DOJ filed its first-ever criminal indictment in federal district court, alleging that Surgical Care Affiliates, LLC (“SCA”) entered into an agreement with a competitor (“Company 1”) not to solicit each other’s senior-level employees, and that this agreement constituted an unlawful conspiracy in violation of Section 1 of the Sherman Act.

SCA’s Motion to Dismiss the Indictment

SCA’s motion to dismiss the indictment accurately pointed out that this prosecution marks the first time in history that the government has tried to prosecute anyone criminally for allegedly entering into an agreement not to solicit another’s employees. SCA further noted that this is not because Congress recently passed a new statute criminalizing non-solicitation agreement, but rather is based on “the notoriously imprecise Section 1 of the Sherman Act, which has been on the books for over a century.”  SCA argued that the government has long forsworn the possibility of criminal prosecution under the Sherman Act’s Section 1 “rule of reason,” instead only pursuing criminal cases that constitutes a “per se” violation of Section 1, such as price-fixing, bid-rigging, and market allocation. Moreover, SCA argued that fundamental principles of due process and fair notice also bar this prosecution because applying a per se rule here for the first time in a criminal context – before per se treatment has been established in the civil context – violates the bedrock rule that the criminal law must provide fair notice of what it prohibits. And, the DOJ cannot satisfy “fair notice” through its 2016 antitrust guidance because guidance documents do not have the force of law (let alone criminal law). Even if it did, SCA’s alleged agreement pre-dates that DOJ guidance by several years. 

The U.S. Chamber of Commerce’s Amicus Brief in Support of SCA’s Motion to Dismiss

The U.S. Chamber of Commerce – the world’s largest business federation – also filed an amicus curiae brief in support of SCA’s motion to dismiss, asserting that the case raised issues of concern to the nation’s business community. The chamber argued in its amicus brief that the DOJ has usurped antitrust policy and decision-making authority vested in Congress and the courts by purporting to declare a new per se criminal offense without due process.  

The DOJ’s Opposition Brief

In its brief in opposition, the DOJ argued that non-solicitation agreements are a type of per se market allocation, and thus, under long-standing precedent, are per se unlawful. In support of this argument, the DOJ cited several federal circuit court cases that held agreements between competitors not to solicit one another’s customers are per se unlawful. The DOJ further argued there is “no legally defensible basis to treat a conspiracy between employers not to solicit employees different from a conspiracy between customers not to solicit customers.” Additionally, the DOJ argued that recent civil district court cases have found employee non-solicitation conspiracies to be per se unlawful. Finally, the DOJ maintained that the Sherman Act itself provided SCA with fair notice, the government’s 2016 guidance did not announce a new principle of law, and its issuance is irrelevant to the due-process inquiry.

SCA’s Response to the DOJ’s Opposition Brief

SCA argued that the DOJ – unable to identify any prior case in which an employee non-solicitation agreement was held to be illegal per se – rests its entire case on a flawed analogy, claiming that employee non-solicitation agreements are simply a species of market allocation long subject to per se treatment. SCA stated that contention is incorrect because non-solicitation agreements involved limited restrictions on initiating discussion with other companies’ employees, not strict divisions of customers, territories, or product markets. And, it took a full century after the Supreme Court began condemning customer market-allocation agreements before anyone suggested that employee non-solicitation agreements were analogous. SCA argued that even if a court someday deems such an agreement per se illegal, it cannot happen for the first time in a criminal case without violating due process.

Jury Trial Date

The court granted SCA’s unopposed motion to continue the trial, based in part on the need to resolve the pending motions to dismiss. The jury trial is set for May 9, 2022.

Key Take-aways

This is a bellwether case for the DOJ and consistent with President Biden’s commitment to ramp up federal antitrust enforcement. If the DOJ prevails in this case, we can expect a number similar federal criminal indictments against businesses for entering into non-solicitation agreements or “no-poach” agreements, i.e., agreements between business competitors not to hire each other’s employees. Even if the DOJ does not prevail, it has previously filed civil actions against companies for non-poach or non-solicitation agreements that resulted in hefty settlements and will likely pursue such cases more aggressively in the near future. Moreover, no-poach agreements have also played a starring role in recent employee class action lawsuits against their employers.

To steer clear of civil or criminal antitrust liability on these issues, employers should strictly follow these guidelines:

  • Never agree with another company about employee salary or other terms of compensation, either at a specific level or within a range.
  • Never agree with another company to refuse to solicit or hire that other company’s employees.
  • Never agree with another company about employee benefits.
  • Never agree with another company on other terms of employment.
  • Never express to competitors that you should not compete too aggressively for employees.
  • Never exchange company-specific information about employee compensation or terms of employment with another company.
  • Never participate in a meeting, such as a trade association meeting, where the above topics are discussed.
  • Never discuss any of the topics above with colleagues at other companies, including during social events or in other non-professional settings.
  • Never receive documents that contain another company’s internal data about employee compensation.

When in doubt about the legality of any action, obtain legal advice from experienced antitrust counsel.  We are here to help.

 

+