The exchange of wage-related information between two competitors may not be a per se violation of antitrust laws, according to a Federal court in Michigan. The decision, from the U.S. District Court for the Eastern District of Michigan, Cason-Merenda v. Detroit Medical Center, et al ,[1] follows two cases filed by the Department of Justice (DOJ) in 2010 that alleged firms conspiring to fix the terms of employment had committed per se violations of § 1 of the Sherman Act.[2] The more recent case characterized the issue as a "very close question." An analysis of the decisions shed some light on how to avoid allowing employment related information exchanges cross the line into a violation of the Sherman Act under either the per se rule or the rule of reason.

The Cason-Merenda case

Cason-Merenda involved an alleged conspiracy to reduce the wages of registered nurses (RNs) at eight[3] Detroit-area hospitals. The class action suit[4] alleged that the hospitals violated § 1 by conspiring to hold down the wages of RNs and by exchanging compensation-related information in a manner that reduced competition in the wages paid to RNs. Specifically, the plaintiffs alleged three ways in which information had been shared among the defendant hospitals: (1) direct contacts to obtain compensation information, including future wage increases, between employees of the various hospitals who were involved in the process of determining RN compensation; (2) healthcare industry organizations, such as a healthcare recruiting association, and meetings that addressed nursing issues, including compensation; and (3) third-party surveys of RN compensation sponsored by the defendant hospitals with disaggregated wage information.

On March 22, 2012, the court issued a lengthy opinion on the parties' cross-motions for summary judgment,[5] with detailed analysis supporting its conclusion that the defendant hospitals were entitled to summary judgment on the plaintiff claim of a per se § 1 violation, but not on a rule of reason theory.

To prove a per se violation in the Sixth Circuit, a plaintiff must show "(1) two or more entities engaged in a conspiracy, combination or contract; (2) to effect a restraint or combination prohibited per se (wherein the anticompetitive effects within a relevant geographic and product market are implied); (3) that was the proximate cause of the plaintiff's antitrust injury."[6] The court noted that because the plaintiff RNs were not able to demonstrate direct evidence of an explicit agreement among the hospitals to fix RN wages, they were left to establish the alleged conspiracy through circumstantial evidence. The defendants argued that the plaintiffs' failure to discover evidence that the hospitals had engaged in parallel conduct was fatal to their circumstantial case. The court, however, stated that parallel conduct was only one form of circumstantial evidence and plaintiffs were not mandated to allege or prove parallel behavior.[7] Rather, "circumstantial evidence of any sort will do, provided that it demonstrates business behavior which evidences a unity of purpose or common design and understanding …in an unlawful arrangement."[8] In addition, in order to make out a circumstantial per se case on a motion for summary judgment, plaintiffs' evidence needed to exclude the possibility of independent action.[9]

The court held that the evidence produced by the plaintiffs just barely failed to meet the per se standard. While the plaintiffs had "produced a great deal of evidence," it was not enough to preclude the inference of independent action by the hospitals.[10] The plaintiffs amassed "considerable evidence" that the hospitals did not pursue their independent self-interests in their "on-demand" exchanges of detailed current and future wage information and in their use of sponsored wage surveys that disclosed disaggregated wage information. The court noted that hospitals' exchange of current disaggregated wage information and the use of sponsored surveys violated the FTC's and DOJ's policy statement on the exchange of wage information in the healthcare industry.[11] The hospitals also had a clear motive to conspire. By not competing for skilled labor, the supply of which is relatively scarce, wages were artificially depressed.[12]

Significantly, however, the evidence of uniform conduct by the hospitals in their wage-setting decisions, which one would expect in a conspiracy, was weak.[13] Indeed, the court found that "the evidence here simply features too wide a disparity among the Defendant hospitals' processes for determining RN compensation and the outcomes of these processes to support" a per se conspiracy in violation of § 1.[14]

On the other hand, the evidence was strong enough to survive summary judgment on a rule of reason theory. Under the rule of reason, the plaintiffs are required to allege and prove that they had suffered an "antitrust injury," that is harm caused by the anticompetitive aspect of the alleged violation.[15] Here, the RNs alleged a conspiracy to depress RN wages through information exchanges.[16] As noted, there was "considerable" evidence of "on-demand" wage information exchanges that was routinely passed up to the hospitals' executive leadership for use in making wage determinations. Given that record, the court found that a jury should be permitted resolve whether plaintiffs had proven "as a matter of fact and with a fair degree of certainty"[17] a "causal link" between an antitrust violation (an agreement to exchange wage information) and the relevant antitrust injury (sub-optimal wages).[18]

Thus, while the court granted the defendant hospitals' motions for summary judgment on plaintiffs' per se claim, it allowed plaintiffs' rule of reason claim to survive summary judgment and proceed to trial.[19] Following the March 22, 2012 decision, plaintiffs[20] and two defendants[21] filed motions for reconsideration. The court denied both motions on May 24, 2012, thus reaffirming its March 22, 2012 decision. [22]

The DOJ cases

In contrast, two cases filed by DOJ resulted in settlements where the defendants agreed to significant restrictions. In Lucasfilm, the DOJ asserted that a non-solicitation agreement between Lucasfilm and another studio was per se unlawful. There the parties had agreed (1) not to cold call each other's employees; (2) to notify each other when making an offer to each other's employees; and (3) not to counteroffer above the other's initial offer when the other company made an offer to one of their employees.[23] In the final judgment, the parties agreed that the defendant is "enjoin[ed] from entering into an agreement with any other person or company to in any way refrain from recruiting the other person or company's employees."[24]

Similarly, in Adobe Systems, the DOJ suggested that while narrowly tailored restraints on hiring would typically be reviewed under the rule of reason, naked restraints – such as agreements not to cold call another company's employees – will be reviewed under the per se rule. In the proposed final judgment, the parties agreed to restrictions that are identical to those entered into in the Lucasfilm case – that each defendant is "enjoined from attempting to enter into, entering into, maintaining or enforcing any agreement with any other person to in any way refrain from, requesting that any person in any way refrain from, or pressuring any person in any way to refrain from soliciting, cold calling, recruiting, or otherwise competing for employees of the other person."[25]

Conclusion and Guidance

The recent Cason-Merenda case confirms that entities allegedly conspiring to fix the terms of employment expose themselves to private – not just government – enforcement. It also confirms that, in order to avoid a finding that an agreement is per se unlawful, entities that intend to exchange wage-related information need to do so with particular care. Compensation information (i) should not be current or concern future wage increases or decreases and (ii) should be sufficiently aggregated such that it would not allow recipients to identify the compensation paid by any particular provider. Compensation surveys should be managed by third parties and not be sponsored. Finally, "no solicitation" agreements should not be entered into unless they are "ancillary to a legitimate procompetitive venture and reasonably necessary to achieve the procompetitive benefits of the collaboration."[26]