Healthcare employers need to be mindful of a recent focus by federal antitrust regulators on agreements with competitors limiting solicitation and hiring of competitor employees.
Last month the Antitrust Division of the U.S. Department of Justice and the Office of the Attorney General of the State of California brought civil antitrust actions against eBay, Inc. for having entered into a “handshake” agreement with a competitor (Intuit Inc.) not to recruit or hire each other’s employees. Intuit was not sued because it was already subject to a consent decree in connection with a similar suit brought in September 2010 against it, Adobe Systems, Inc., Apple, Inc., Google Inc., and Intel Corp. for bilateral agreements prohibiting “cold calls” soliciting each other’s employees (but not limiting employee initiated contacts). The Division had also sued Lucas film Ltd., and Pixar Inc. in December 2010, but this suit challenged no-solicitation agreements which also placed restraints on counteroffers and required employer notification.
These agreements were alleged by the Division to be per se (unlawful without consideration of economic justifications) violations of Section 1 of the Sherman Act which limited the individual employees’ ability to obtain higher compensation, improved benefits and working conditions, and the ability to readily change jobs within their chosen fields. The Division contended in the alternative that the agreements would fail under a rule of reason analysis, because the agreements lacked any pro-competitive justifications.
Originally the agreement proposed by eBay covered only non-solicitation of “high-level executives” but Intuit’s founder demanded that it apply to a broader range of employees and include both a no-hire provision as well as non-solicitation provision.
While the two prior complaints led to quick consent decrees, eBay has taken the view that the Antitrust Division is being “overly aggressive” in the current suit and has vowed to vigorously defend itself. If eBay persists in this position then it will give the federal court an opportunity to determine whether per se or rule of reason analysis applies. Despite its protests, eBay may pursue a consent decree simply to eliminate the possibility of a truly onerous legal standard.
If eBay persists, it may draw comfort from the recent decision in Molinari v. Consol Energy Inc., et al., No. 2:12-cv-1085 (W.D. Pa. 11/27/12) where the district court dismissed with prejudice an amended complaint charging a rule of reason violation of Section 1 through bilateral agreements In Molinari the plaintiff failed to adequately define the relevant product market, instead relying on a definition limited to the original employer. If the Molinari agreement had been more limited in terms of the type of employee covered or the types of new employer (i.e., a competitor), then this decision would have been much closer.
The DOJ line of cases described above indicate a marked and continuing interest by DOJ in non-solicitation and no-hire agreements, where made with competitors. It will be fairly difficult to overcome a per se DOJ complaint. Accordingly, if a healthcare company determines that such agreements are necessary for a particular collaborative transaction with a competitor is there any hope of avoiding such treatment if the agreements are brought to DOJ’s attention? The answer is that there is a distinct prospect of tailoring an acceptable limitation.
First, prospective employers should consider limiting the agreement to non-solicitation. While the Adobe case mentioned above was limited to non-solicitation, it was also very broad in terms of its geographic scope, its product group and its time period.
Second, the agreements should not be stand alone. The DOJ complaint in Adobe noted that the non-solicitation agreements “were not ancillary to any legitimate collaboration between Defendants” and “were much broader than reasonably necessary for the formation or implementation of any collaborative effort.”
Third, limit the scope of the agreement to a specific category of employees with specific end dates to the restrictions. The more tailored the restrictive provisions are to accomplish the pro-competitive purposes of a competitor collaboration, the more likely it is that an antitrust regulator or court will apply a rule of reason analysis. It is in this circumstance that you are able to explain why the non-solicitation provisions are merely ancillary to a broader competition enhancing goal.
These issues are not simple and must be carefully considered before entering into a non-solicitation agreement with a competitor, or any company.