DOJ Continues its Enforcement Efforts Against Anticompetitive Conduct in Labor Markets, Charges Health Care Company for No-Poach Agreements with First Criminal Indictment
Last week, the Department of Justice (“DOJ”) announced the criminal indictment of Surgical Care Affiliates LLC (“SCA”), an Alabama- and Illinois-based company, which owned and operated outpatient medical centers around the U.S., for its alleged agreements with competitors not to solicit senior-level employees. DOJ has been suggesting since 2006 that it would use the criminal provisions of the antitrust laws against into employee allocation agreements—commonly called no-poach agreements, and DOJ has now followed through on its warnings.
According to the indictment filed in the Northern District of Texas, the CEO of SCA, identified as “Individual 1”, entered into no-poach agreements with two other health care companies in order to suppress competition between them for senior-level employees. These alleged no-poach agreements are per se unlawful under Section 1 of the Sherman Act (15 U.S.C. § 1).
First, beginning in May 2010 and lasting until October 2017, the DOJ alleges that Individual 1 entered into an agreement with the CEO of an unnamed Company A, a Texas-based health care company, to not solicit each other’s senior-level employees. This agreement was reflected in documents from both companies. For example, the CEO of Company A emailed other employees of the company, stating “I had a conversation w [Individual 1] re people and we reached an agreement that we would not approach each other’s proactively.”
The CEOs then allegedly took steps to up hold the agreement, instructing their respective human resources departments to not solicit senior-level employees of each other’s companies. For example, a senior human resources employee at Company A allegedly informed a recruiter that “[w]e cannot reach out to SCA folks. Take any SCA folks off the list.” The CEOs also allegedly took steps to remedy violations of the agreement, including flagging an instance where a recruiting company was reaching out to executives of Company A.
In addition to the agreement between SCA and Company A, the DOJ alleges that Individual 1 also entered into a separate no-poach agreement with the CEO of Company B, a Colorado-based health care company. This alleged conspiracy lasted between February 2012 and July 2017. Using similar means and methods as the conspiracy with Company A, the indictment alleges that Individual 1 and the CEO of Company B instructed employees not to recruit each other’s employees and monitored compliance with the agreement. This allegedly included Individual 1 telling a human resources executive: “Putting two companies in italics ([Company A] and [Company B]) – we can recruit junior people (below Director), but our agreement is that we would only speak with senior executive if they have told their bosses already that they want to leave and are looking.”
Significantly, this indictment is the DOJ’s second criminal prosecution for anticompetitive conduct in the health care labor market announced in the last two months. In December 2020, the DOJ brought its first criminal case involving employer wage-fixing. Our blog post regarding the first indictment can be found here.
These two criminal indictments demonstrate just how serious antitrust enforcers are about human resources issues. And, with the incoming Biden Administration, we can expect the DOJ to be equally, if not more aggressive, in its pursuit of anticompetitive conduct in labor markets.
Therefore, companies and their employees, especially those involved in recruiting and hiring, must be mindful of the threat of criminal prosecution for anticompetitive conduct.
It is also important that companies remember that a no-poach or wage-fixing agreement does not have to be with a direct business competitor for the agreement to be illegal. If the companies compete for the same employees, the agreement is a Section 1 violation, irrespective of each other’s businesses.