Now when the US Department of Justice (DOJ) is expected to bring its first criminal antitrust cases based on “no-poaching” agreements, a recent federal district court decision in Seaman v. Duke University1 highlights the private causes of action based on such agreements. The facts of the case further remind us of the Antitrust Guidance for Human Resource Professionals, issued by the DOJ and Federal Trade Commission (FTC), and how antitrust laws apply to the employment marketplace.
In Seaman, the plaintiff alleges that the defendants, which include entities and individuals affiliated with Duke University and the University of North Carolina at Chapel Hill,2 “conspired and agreed that the Duke defendants would not hire or attempt to hire faculty employed by the UNC defendants, and vice-versa.”3 The lawsuit stems from the plaintiff’s attempt to apply for an opening at UNC while she was still employed as a faculty member at Duke.4 In response to her application, the plaintiff received an email advising her that “‘lateral moves of faculty between Duke and UNC are not permitted’ due to a ‘guideline which was agreed upon between the deans of UNC and Duke a few years back.’”5
The plaintiff brought suit alleging that the defendants’ agreement violated federal antitrust law and “suppressed compensation throughout the defendants’ medical schools and healthcare facilities.”6 She further sought “to certify a class of faculty, physicians, nurses, and skilled medical staff that worked for the defendants.”7
On February 1, 2018, the US District Court for the Middle District of North Carolina certified a class consisting of more than 5,400 faculty members8. While the court declined to include non-faculty members in the class, the court left open the possibility that non-faculty could pursue a separate class action. The court further left open the possibility of individual suits by faculty on other grounds.
Court permits antitrust impact theories based on “preemptive compensation increases” and “internal equity structures”
With respect to faculty, the plaintiff asserted two theories under which the defendants’ conduct suppressed compensation on a faculty-wide basis: one relating to “preemptive compensation increases,” and a second relating to “internal equity structures.”
Under the first theory, the plaintiff asserted that as a result of the alleged no-hire agreement, the defendants “did not have to provide preemptive compensation increases for faculty that otherwise would have been needed to ensure employee retention.”9 On this point, she offered expert opinions that the defendants are “each other’s main competitors for physicians who want to live in the Durham-Chapel Hill area,” and that “lateral hiring competition between the defendants would encourage the defendants to preemptively increase compensation to retain faculty.”10
Under the second theory, the plaintiff asserted that “the individual harm of decreased lateral offers and corresponding lack of retention offers” suppressed compensation across all faculty through internal equity structures, i.e., “policies and practices that are alleged to have ensured relatively constant compensation relationships between employees.”11 On this point, the plaintiff offered expert evidence showing that “lateral hiring increases compensation for employees throughout an organization when that organization manages employee compensation to maintain parity within employment categories or to achieve compensation relationships between employee categories.”12
The court agreed for purposes of class certification that the evidence supported both of the plaintiff’s theories of antitrust impact for faculty and further agreed that the plaintiff’s proposed damages analysis was consistent with those theories.13 After finding that the plaintiff had met the requirements of Rule 23(b)(3) and Rule 23(a), the court certified a class consisting of faculty members.14
The court was similarly persuaded by the plaintiff’s internal equity theory with respect to non-faculty, although the theory relied on different evidence. At the class certification hearing, the plaintiff’s counsel “confirmed it had no direct evidence of an agreement as to non-faculty and admitted the only circumstantial evidence was the evidence about the agreement as to faculty.”15 Accordingly, in pursuing this theory for non-faculty, the plaintiff asserted that “the no-hire agreement as to faculty and the resulting suppression of faculty compensation spread to all non-faculty through the defendants’ internal equity structures.”16 The theory thus relied on the same economic principles concerning the defendants’ internal equity structures, using evidence specific to non-faculty and relying on expert analysis to show that the impact on compensation was shared across faculty and non-faculty.17 As with the faculty, the court found that the plaintiff met the requirements to pursue this theory of antitrust impact for non-faculty and that the plaintiff proposed a damages analysis was consistent with that theory.18 Even so, the court declined to include non-faculty in the certified class, due in part to concerns that having all members in one class was “likely to cause significant confusion,” and that “the strength of the faculty claim or the weakness of the non-faculty claim might tend to bleed over to the other claim in the jury’s mind.”19 The court expressly noted, however, that “[n]on-faculty class members may pursue a separate class action,” thereby leaving open the possibility that non-faculty could successfully seek certification based on the same antitrust impact theory regarding internal equity structures.20
Court leaves open possibility of future claims by individual class members on other theories
In addition to leaving open the door to a separate class action suit by non-faculty, the court also noted the possibility that individual faculty class members could bring separate individual suits based on the same alleged no-hire agreement. As the court explained:
For example, the agreement may have suppressed an individual’s compensation under [the plaintiff’s] theories of class-wide liability, but the agreement also may have impacted and damaged an individual who missed out on increased compensation associated with a lateral move or lateral move offer. The class-wide and individual theories of impact and damages are not mutually exclusive, but only the class-wide theories are being asserted in this case.21
Citing Supreme Court precedent, the court expressed its view that “future claims based on theories of individual impact and damages” should not be barred by the outcome of the class action, “because those individual theories are not included in this certification order and may not be brought in this case.”22 At the time of the court’s decision, no individual cases had been filed against the defendants asserting antitrust claims based on the alleged no-hire agreement.23
Federal guidance regarding no-poaching agreements
The Seaman case also serves as a reminder of the Antitrust Guidance for Human Resource Professionals (Antitrust HR Guidance) and how antitrust laws can intersect the employment marketplace.
Issued by the DOJ and FTC in October 2016, the Antitrust HR Guidance “is intended to alert human resource (HR) professionals and others involved in hiring and compensation decisions to potential violations of the antitrust laws.”24 Among other discussion points, the Antitrust HR Guidance advises that “[a]n individual likely is breaking the antitrust laws if he or she . . . agrees with individual(s) at another company to refuse to solicit or hire that other company’s employees (so-called ‘no-poaching’ agreements).”25 The Antitrust HR Guidance distinguishes between “naked” no-poaching agreements and those that are “reasonably necessary to a larger legitimate collaboration between the employers.”26 While the latter may not violate antitrust laws, the Antitrust HR Guidance advises that “[n]aked . . . no-poaching agreements among employers, whether entered into directly or through a third-party intermediary, are per se illegal under the antitrust laws.”27
After noting previous civil enforcement actions concerning no-poaching agreements that ended in consent judgments, the Antitrust HR Guidance advises of the DOJ’s intent to “proceed criminally” against such naked agreements in the future.28 The Antitrust HR Guidance explains that “[t]hese types of agreements eliminate competition in the same irredeemable way as agreements to fix product prices or allocate customers, which have traditionally been criminally investigated and prosecuted as hardcore cartel conduct.”29 Criminal action against no-poaching agreements was also recently addressed by Makan Delrahim, Assistant Attorney General for the DOJ Antitrust Division. Speaking at a conference in January 2018, he stated that in the coming months the DOJ will bring its first criminal cases based on such agreements.30 Citing the Antitrust HR Guidance, he further advised that “[i]f the activity has not been stopped and continued from the time when the [Antitrust HR Guidance] was made . . . we'll treat that as criminal.”31