Two weeks ago, the District of Colorado denied defendants’ motion to dismiss in a criminal case targeting agreements between competitors not to solicit (or “poach”) each other’s employees. United States v. DaVita Inc. et al. is part of a wave of four criminal cases regarding no-poach and wage-fixing deals brought by the Department of Justice for the first time ever over the past year. The DOJ contends that the arrangements at issue are per se unlawful under the Sherman Act, even though no appellate court has ever expressly held as such. Defendants in each case, including DaVita, moved to dismiss the charges, asserting that these types of agreements are not per se illegal and that they lacked fair notice that their conduct was a crime.

In addition to the DaVita decision, the motion to dismiss inUnited States v. Jindalwas also recently denied by the Eastern District of Texas. Motions to dismiss in two other cases remain pending, but these first decisions illuminate how courts may treat similar prosecutions going forward.

Recent DOJ Prosecutions of Wage-Fixing and No-Poach Agreements

The foundation for these cases was laid in 2016, when the DOJ and the Federal Trade Commission issued joint guidance asserting that no-poach agreements and wage-fixing arrangements are per se unlawful and can lead to criminal antitrust charges when they’re not tied to a legitimate collaboration between employers. Then, in late 2020, the DOJ brought its first criminal wage-fixing case, charging two employees of a Texas healthcare staffing company, for colluding with another staffing company to decrease pay rates for physical therapists and physical therapist assistants. United States v. Jindal, et al., No. 4:20-cr-00358 (E.D. Tex.).

In the following months, the DOJ brought its first three criminal no-poach cases against other healthcare companies and their employees: United States v. Surgical Care Affiliates LLC et al., 3:21-cr-00011 (N.D. Tex); United States v. Hee, 2:21-cr-00098 (D. Nev.); and United States v. DaVita Inc. et al., 1:21-CR-00229 (D. Col.). These indictments allege that the defendants conspired with competitors not to recruit each other’s employees, and Hee also includes wage-fixing allegations.

Background On Per Se Illegality

Each indictment alleged that the scheme at issue was per se unlawful, reflecting the DOJ’s longstanding policy of only filing criminal antitrust charges based on per se violations. See United States v. Kemp & Assocs, Inc. (10th Cir. 2018). If conduct violates the Sherman Act per se (as opposed to under the rule of reason), the Supreme Court has held that it is “necessarily illegal” unless “tied to a broader legitimate collaboration” such that there is no “need to study the reasonableness of an individual restraint.”

Per se illegality is typically limited to horizontal agreements to fix prices, e.g., Texaco Inc. v. Dagher (2006); rig bids, e.g., United States v. Rose (5th Cir. 2006); or divide or allocate markets, e.g., United States v. Topco Assocs., Inc. (1972).

In the civil context, there is precedent holding that wage-fixing agreements are analogous to price-fixing and thus should be considered per se illegal. The 2016 joint agency guidance makes the same analogy, stating: “Just as competition among sellers in an open marketplace gives consumers the benefits of lower prices, higher quality products and services, more choices, and greater innovation, competition among employers helps actual and potential employees through higher wages, better benefits, or other terms of employment.” But no appellate court has held as such[1] and, until this past November, the DOJ had never criminally prosecuted a wage-fixing agreement. The case law on employee non-solicitation agreements is even sparser. According to the defendants in one no-poach case, no appellate court has addressed such agreements, and of the few district courts who have faced these agreements in the civil context, none have applied the per se rule. Some of these courts have declined to do so, see, e.g., Yi v. SK Bakeries, LLC (W.D. Wash. Nov. 13, 2018), while others have deferred the issue and then never resolved it, see, e.g.,United States v. eBay, Inc. (N.D. Cal. 2013). [decisions are hyperlinked]

Motions to Dismiss

The defendants in each of these cases moved to dismiss the indictments for failure to state an offense. According to the defendants, the agreements at issue are not per se illegal and the indictments violate due process, which “bars courts from applying a novel construction of a criminal statute to conduct that neither the statute nor any prior judicial decision has fairly disclosed to be within its scope.” United States v. Lanier (1997). To support their due process argument, the defendants asserted that they lacked fair warning that their conduct was a crime because wage-fixing and no-poach agreements had never been criminally prosecuted and no appellate court had held that such agreements are per se unlawful. In one of these cases, the United States Chamber of Commerce filed an amicus brief in support of the defendants, reiterating their due process arguments and maintaining that the 2016 DOJ-FTC guidance violated the separation of powers by “appropriat[ing] authority squarely vested in Congress and the courts” to determine what is a per se offense.

Recent Court Decisions

So far, these motions have been unsuccessful. In November, Judge Mazzant in the Eastern District of Texas denied the defendants' motion, holding that wage fixing is “tantamount to an agreement to fix prices” and “thus falls squarely within the traditional per se rule against price fixing.” Judge Mazzant also rejected defendants’ due process argument, reasoning that “courts have repeatedly held price fixing as per se illegal” and that “the lack of criminal judicial decisions [about wage-fixing] only indicates Defendants’ unlucky status as the first two individuals that the Government has prosecuted for this type of conduct before.”

Then, two weeks ago, Judge Jackson in the District of Colorado denied DaVita, Inc. and its ex-CEO's motion to dismiss the DOJ’s no-poach charges. Judge Jackson agreed with the government that no-poach agreements are a type of horizontal market allocation, which courts have long recognized as a per se Sherman Act violation. Additionally, Judge Jackson pointed to a 1988 case where the Sixth Circuit had applied the per se rule to a customer non-solicitation agreement, finding that case sufficiently analogous. Judge Jackson acknowledged that “there are no cases perfectly analogous to this case” and explained, “that is the nature of Section 1 of the Sherman Act: as violators use new methods to suppress competition by allocating the market or fixing prices these new methods will have to be prosecuted for a first time.” The judge similarly rejected the defendants’ due process argument, finding that they had notice that market-allocation agreements were illegal and that “[t]he fact that defendants allegedly allocated the market in a novel way—by using a non-solicitation agreement—does not matter.”

The DOJ’s prosecution trend seems to be only just beginning—two weeks ago, the DOJ announced a new indictment of Maine healthcare employers for conspiring to fix wages. We’ll keep an eye out for how the Jindal and DaVitacases progress and how the dismissal bids in the other two no-poach cases, Surgical Care Affiliatesand Hee, play out. In the meantime, employers should pay careful attention to the DOJ and FTC’s 2016 guidance, which emphasizes the following:

  • An individual is likely violating antitrust laws if they agree with individuals at another company about terms of employee compensation or to refuse to solicit or hire that other company’s employees;
  • Employers should avoid sharing information with competitors about terms and conditions of employment;
  • If employers do need to share such information with competitors, best practices for doing so are as follows:
    • A neutral third party should manage the exchange;
    • The information should be relatively old; and
    • The information should be aggregated, and competitors should not be able to link particular data to an individual source.

Additionally, it may be lawful for a potential buyer to obtain limited competitively sensitive information in the course of determining whether to pursue a merger or acquisition, if “appropriate precautions are taken.” The DOJ Antitrust Division and the FTC also have advisory processes meant to help companies determine how the agencies will respond to proposed joint ventures (or other business conduct) before they are implemented.

In addition to offering guidelines on best practices for sharing information with competitors, the 2016 guidance also advises review of the more robust policy proffered by the DOJ and FTC in the context of the healthcare industry.