Skip to site navigation Skip to main content Skip to footer content Skip to Site Search page Skip to People Search page

Bylined Articles

Expect Increasing Scrutiny of Wage-Fixing, No-Poach Deals

By Christopher Casey, Sean McConnell and Brian Pandya
May 5, 2021

Expect Increasing Scrutiny of Wage-Fixing, No-Poach Deals

By Christopher Casey, Sean McConnell and Brian Pandya
May 5, 2021

Read below

Companies have long sought to prevent their competitors — particularly in skilled fields like life sciences, health care, software development and engineering — from benefiting from the talents and training of their employees.

Examples of such efforts include noncompete agreements between employers and employees, and carefully worded joint venture agreements that prohibit one partner from insourcing the know-how of another partner.

Although noncompete agreements between employers and employees have been subject to scrutiny for years, agreements between employers to restrict solicitation of each other's employees or to fix employee wages have largely flown under the radar.

In fact, it was not until a little over four years ago that federal antitrust enforcers signaled that such agreements could be presumed illegal and criminally prosecuted. And even that policy change, significant though it was, did not bring an immediate uptick in enforcement activity.

That wait now appears to be over. The U.S. Department of Justice's Antitrust Division has recently been aggressively bringing enforcement actions against labor market collusion, with more cases on the horizon.

On Dec. 9, 2020, the DOJ brought its first-ever criminal labor market indictment, USA v. Neeraj Jindal, charging the former owner of a Texas therapist staffing company with a wage-fixing scheme. The case is discussed later in this article.

Since that indictment, the DOJ has brought similar charges against two more individuals and two companies. All of the charges so far have been in industries related to health care, but the principles apply to all sectors, especially those with skilled workforces.

In addition to these indictments, private lawsuits making similar allegations have been filed in recent months across the country. With the DOJ signaling that more indictments are on the way, and with more private litigation sure to follow, it looks like antitrust litigation involving labor market collusion is finally here to stay.

A Groundbreaking Policy Shift

The possibility of criminal charges for labor market antitrust violations is a relatively new development in antitrust enforcement, tracing its beginnings to steps taken near the end of the Obama administration. In a guidance document issued in October 2016, the DOJ and the Federal Trade Commission alerted human resources professionals to potential violations of the antitrust laws in hiring and compensation decisions.

The guidance included the announcement that:

Going forward, the DOJ intends to proceed criminally against naked wage-fixing or no-poaching agreements [i.e., those agreements that are] separate from or not reasonably necessary to a larger legitimate collaboration between the employers.

This was a groundbreaking policy shift. The federal statute that applies to such agreements, the Sherman Act, allows the DOJ to proceed either criminally or civilly against antitrust violators.

But before the 2016 guidance was issued, the DOJ had only treated agreements between competitors not to solicit each other's employees as civil violations, to be evaluated under the rule of reason, whereby the agreement's legality depends on a balancing of the pro-competitive justifications for the conduct against its anti-competitive effect.

The 2016 announcement meant that the DOJ would henceforth treat such agreements as per se illegal, i.e., inherently unjustified, on par with price-fixing, bid-rigging and customer allocation agreements, although agreements that were part of legitimate joint ventures or otherwise not naked agreements may still only face civil scrutiny under a rule of reason analysis.

A Four-Year Wait, Then Four Straight Indictments

Although the announcement signaled a significant change in enforcement policy, it would be more than four years before the DOJ brought its first labor market indictment.

In the intervening years, the DOJ reached one civil settlement involving no-poach allegations and filed multiple statements of interest and amicus briefs in various courts in labor market collusion cases filed by private plaintiffs.

In April 2018, the DOJ reached a civil settlement of no-poach allegations with two of the world's largest rail equipment suppliers, Knorr-Bremse AG and Westinghouse Air Brake Technologies Corp., or Wabtec.

Knorr and Wabtec had agreed in 2009 not to solicit each other's employees. Because the conduct had occurred prior to the October 2016 announcement of the new policy, the DOJ did not charge a criminal violation in that case.

In Seaman v. Duke University,  a federal case involving an alleged agreement between Duke University and the University of North Carolina not to hire each other's faculty, the DOJ filed a statement of interest on March 7, 2019, supporting plaintiff Danielle Seaman's position on the proper standard to apply in evaluating the no-poach agreement.

In its statement, the DOJ urged the U.S. District Court for the Middle District of North Carolina to evaluate the agreement under the per se standard, rather than the harder-to-prove rule of reason standard, if the evidence proved that Duke and UNC had entered into a naked no-poach agreement.

If, on the other hand, the evidence showed that the agreement was reasonably necessary to a separate, legitimate business transaction or collaboration between the employers, it should be judged under the rule of reason, the DOJ argued.

The DOJ also filed statements of interest in several related cases in Washington state involving no-poach provisions in franchise agreements among fast-food companies.

The DOJ sided with the defendants in those cases and urged the court to apply the rule of reason, and not the per se standard, when determining whether the plaintiffs had stated a claim that the agreements violated Section 1 of the Sherman Act.

The reason that the DOJ argued for application of the rule of reason in those cases is that, unlike the Seaman v. Duke case, the alleged agreements were vertical ones between franchisors and their franchisees. Vertical arrangements are almost always assessed under the rule of reason.

But the criminal cases took longer to develop. In testimony to the House Judiciary Committee in October 2019, Doha Mekki, the former counsel to the assistant attorney general, hinted that cases were coming, noting that "a number of active criminal investigations into naked no-poach and wage-fixing agreements" were ongoing.

Then in early December 2020, DOJ brought its first criminal charges against individuals or corporations for labor agreements.

In that case, the DOJ charged Neeraj Jindal, the former owner of a Texas therapist staffing company referred to in the indictment as "Company A," with engaging in a conspiracy to suppress the wages of physical therapists and physical therapist assistants who provide home health care. The charges were brought by a federal grand jury summoned by the U.S. District Court for the Eastern District of Texas.

Several weeks later, on Jan. 5, the DOJ brought its first-ever no-poach indictment. The defendant was Surgical Care Affiliates Inc., a company that operates around 230 outpatient surgical facilities across the country.

The indictment, brought in the U.S. District Court for the Northern District of Texas, alleged that SCA agreed with two unnamed health care companies to not solicit each other's senior-level employees.

DOJ officials recently forecasted a continuing push to police labor markets. Speaking at the American Bar Association's Antitrust Law Spring Meeting, held virtually in March, Antitrust Division Director of Criminal Enforcement Marvin Price highlighted the Jindal and SCA indictments and said that the DOJ is committed to protecting American workers by prosecuting anti-competitive agreements that limit mobility and reduce wages. Price also said that more indictments would be coming later in the year.

Within days of Price's speech, on March 30, the DOJ brought its third indictment following the policy change. A grand jury in Las Vegas charged VDA OC LLC, a health care staffing company that provided nurses for a public school district in Nevada, and a former manager for the company with agreeing with another contractor to the school district to not raise wages or hire nurses from each other.

In a statement accompanying the indictment, acting Assistant Attorney General Richard A. Powers said that when employers conspire to fix wages and allocate employees "it robs American workers of higher pay and the ability to bargain for better, higher-paying jobs," and that the DOJ would "use every investigative tool at our disposal to investigate these crimes and prosecute perpetrators to the full extent of the law."

Most recently, on April 19, the DOJ superseded the Jindal indictment to add a second defendant, John Rodgers, a former clinical director of the staffing company. In addition to the wage-fixing charges, the grand jury also charged Jindal and Rodgers with obstruction for allegedly lying to FTC investigators about their conduct.

The Business Community Hits Back

The government's enforcement efforts against wage-fixing and no-poach agreements have gotten the attention of the business community. On April 2, the U.S. Chamber of Commerce took direct aim at the DOJ's authority to bring such criminal charges against employers in an amicus curiae brief in the SCA case.

The Chamber, the world's largest business federation with approximately 300,000 direct members, argues in its brief that the indictment against SCA should be dismissed because "[b]y purporting to declare a new per se criminal offense, the Department of Justice has usurped antitrust policy- and decision-making authority vested in Congress and the courts."

The Chamber argues that the indictment against SCA is unconstitutional because it violates core constitutional protections, namely, due process and the separation of powers. The due process argument states that SCA lacked fair notice that its conduct may be deemed per se illegal because no court has ever declared no-poach agreements to be per se illegal.

Because the Sherman Act does not clearly identify the types of conduct that it covers, it is left to the courts to declare what conduct falls within the statute. Courts have declared conduct such as price-fixing, bid-rigging and market division to be per se violations, but only the DOJ and the FTC, and not the courts, have put wage-fixing and no-poach agreements in that category.

Thus, the Chamber's argument goes, companies such as SCA did not have fair notice that such conduct would be deemed per se illegal and therefore subject to criminal prosecution. The Chamber's separation of powers argument is that "[o]nly courts empowered by the Sherman Act, not federal prosecutors, are authorized to declare new per se violations." The Chamber's arguments largely echo those made by SCA in its motion to dismiss the indictment filed on March 26.

As of this writing, the DOJ had not yet responded to the Chamber's amicus brief.

Private Litigation Heats Up

As often happens when the government begins to focus its enforcement efforts in a new area, private litigation has followed the DOJ's labor market indictments. Between Jan. 19 and March 9, four separate class actions were filed against SCA and other companies, including UnitedHealth Group, Inc., and Tenet Healthcare Corporation in the U.S. District Court for the Northern District of Illinois, all relying heavily on the facts alleged in the Northern District of Texas indictment and alleging the same no-poach conspiracy. The DOJ has asked the court to stay the litigation during the pendency of its criminal case against SCA.

And in an entirely new case, a putative class comprised of health care professionals in Pennsylvania sued two central Pennsylvania rival hospitals, Geisinger Health and Evangelical Community Hospital, alleging that the hospitals reached an illegal agreement not to poach each other's doctors, nurses, psychologists, therapists and other health care professionals, leading to the suppression of wages for health care professionals in the area. According to the amended complaint, filed on March 18, the alleged agreement came to light when the DOJ was investigating Geisinger's partial acquisition of Evangelical.

In an Aug. 5, 2020 complaint, the DOJ sued to block the acquisition and described the alleged no-poach conduct in the complaint. The DOJ and the hospitals later reached a consent agreement regarding the combination of the two hospitals.

The class action complaint alleges that "[b]ut for the DOJ's investigation of a proposed acquisition between the Defendants, and the resulting publication of the DOJ Complaint exposing the No-Poach Agreement, the existence of the anticompetitive No-Poach Agreement might have remained permanently hidden."

Risk of Criminal Treatment May Be Limited by Narrowly Tailoring Restraints

This explosion of litigation in labor markets means that all employers who enter agreements regarding wages, solicitation and hiring are potentially subject to either an indictment or a private lawsuit. The DOJ's guidance states that wage-fixing and no-poach agreements that are "reasonably necessary to a larger legitimate collaboration between the employers" will not be criminally prosecuted. The "larger legitimate collaboration" can take the form of an employment or severance agreement, an M&A agreement or a joint venture.

This leads to the question of what types of wage-fixing or no-poach agreements may be deemed "reasonably necessary" so as to avoid criminal treatment by the DOJ. Although the determination will depend on the facts and circumstances of each case, there are a few general principles that companies should consider before entering into such an agreement:

  • Where the larger collaboration is pro-competitive, and the wage-fixing or no-poach aspect of the agreement is not the goal of the collaboration, the DOJ is less likely to bring criminal charges.
  • A narrow wage-fixing or no-poach agreement is preferable to a broad one — for example, tailoring the agreement to a small group of employees who have key know-how, training or talent will help avoid criminal treatment.
  • An agreement not to solicit each other's employees is more likely to avoid criminal treatment if employees are allowed to apply for open job positions with the other company.
  • Limitations on the duration of the no-poach agreement, such as only allowing the no-poach provision to extend through the term of the larger contract or collaboration, will help avoid criminal treatment.


We can expect to see more indictments of employers for wage-fixing or no-poach agreements, and more civil suits against employers over such agreements, in the coming months.

This new enforcement environment should cause employers to carefully consider whether the benefits of such agreements — such as preserving their investment in employee training and development or protecting trade secrets — outweigh the increasing risk of a criminal prosecution or a lawsuit.

The consequences for a company or an individual can be severe. Criminal violations of the Sherman Act are punishable by up to $100 million in fines for companies and $1 million in fines for individuals, or twice the gross gain or loss from the offense, whichever is greater. Individuals can be sentenced to up to 10 years of imprisonment.

In addition, private plaintiffs are entitled to treble damages, or three times the amount the plaintiff actually suffered from the violation, plus attorney fees.

But there are ways to enter such agreements and still mitigate these risks. Before entering into such an agreement, companies should consider narrowly tailoring the agreement in terms of the scope of employees covered by the agreement, the duration of the agreement, and what is considered nonsolicitation.

To the extent that the agreement is narrowly tailored in these ways, the government is less likely to treat the agreement as a per se violation and therefore less likely to bring a criminal prosecution.

Such tailoring of the agreement will also make it more defensible from a civil enforcement action or private lawsuit, where the question will be whether there are pro-competitive aspects of the agreement, and if so, whether they outweigh the reduction in labor market competition that the agreement creates.

Companies should also review their existing labor market agreements to determine whether they should be amended to avoid criminal or civil exposure, and to ensure that such agreements sunset when no longer necessary to serve the company's legitimate business purposes.

If companies become aware that individual employees are engaged in illegal wage-fixing or no-poach activity, they should consider self-reporting such activity to the government to mitigate the penalties they may face.

In such cases, companies should institute remediation measures — and strengthen existing compliance programs — to limit future liability. These commonsense, proactive steps will help employers (and their executives) navigate this new world.

Christopher H. Casey is a partner at Duane Morris LLP and previously served as deputy associate attorney general at the U.S. Department of Justice, as a litigator at the Federal Trade Commission, and as an assistant U.S. attorney.

Sean McConnell is a partner at the firm.

Brian Pandya is a partner at the firm, and previously served at the U.S. Justice Department as deputy associate attorney general, where he oversaw litigations and investigations by the Antitrust Division and Civil Division.

Reprinted with permission of Law360.