The Department of Justice (DOJ) continues to pursue no-poach agreements as criminal conduct despite yet another recent defeat, this time in United States v. Patel. In Patel, the DOJ alleged that employees of an aerospace company and outsourcing competitors conspired to restrict the hiring and recruiting of aerospace engineers and other employees in violation of the Sherman Act’s criminal provisions. On April 28, the U.S. District Court for the District of Connecticut granted the defendants’ motion for judgment of acquittal, finding insufficient evidence of market allocation for a reasonable jury to find beyond a reasonable doubt a per se violation of Section 1 of the Sherman Act. In particular, the court explained, the government failed to prove in its case in chief that there was a labor market allocation “to any meaningful extent” because the alleged agreement allowed frequent hiring, even calling it “commonplace.”
The DOJ’s most recent loss looms large for another criminal no-poach case pending in the Northern District of Texas: United States v. Surgical Care Affiliates. Since the judgment of acquittal in Patel, the DOJ has argued in Surgical Care Affiliates that the “astonishing” reasoning of the Patel decision “was wrong as a matter of law,” conflicts with decades of Supreme Court and circuit jurisprudence and would allow competitors to agree not to compete for employees “as long as the agreement does not altogether foreclose hiring or employee movement.” The question for Surgical Care Affiliates is whether the Northern District of Texas will distinguish Patel on the facts or on the law, or set up a circuit split that could lead to the Supreme Court and bring some clarity to a corner of antitrust law – labor markets – that raises old legal questions in a new factual context.
Despite its string of criminal no-poach losses – Patel being its fourth loss in four cases – the DOJ will no doubt continue to pursue naked no-poach agreements between competitors as criminal violations of Section 1 of the Sherman Act. The enforcement agencies have repeatedly declared they are not afraid to lose cases raising novel theories of antitrust liability and that the threat of criminal prosecution, even without convictions, serves an important deterrent function. And the agencies perceive small wins in their losses, having survived motions to dismiss in criminal no-poach cases that have produced legal decisions clarifying that no-poach agreements can form the basis for criminal violations, even if subject to the rigorous beyond-a-reasonable-doubt standard inherent in criminal prosecutions. What’s more, there is a distinct threat of civil litigation and corresponding treble damages, shifting of attorneys’ fees and onerous consent decrees, remedies that are far more attainable. In short, business interests would be wise to steer clear of agreements with competitors to restrict employee hiring and recruiting unless the agreement is ancillary to a legitimate procompetitive business transaction.
Authors: Tyson Y. Herrold, Andrew J. Martin