DOJ Brings First Criminal Enforcement Action Arising from No-Poach Agreements

On January 5, 2021, the Department of Justice ("DOJ") brought a two-count criminal indictment against Surgical Care Affiliates, LLC, an owner and operator of health care facilities across the United States, and its successor, SCAI Holdings, LLC (collectively "SCA"). The indictment, alongside the HR guidance released by the DOJ and the Federal Trade Commission ("FTC") in October 2016, may have implications for employers. Full background on the indictment and the 2016 guidance as well as considerations for businesses are provided below.

Allegations in the SCA Indictment

The indictment alleges that SCA entered into separate agreements with two unnamed competitor owners/operators of outpatient medical care facilities "to suppress competition between them for the services of senior-level employees by agreeing not to solicit the other's senior-level employees." The indictment alleges that acts in furtherance of the conspiracy included:

1. agreeing not to solicit or proactively approach each other's senior-level employees;
2. instructing employees that "[w]e cannot reach out" to the other companies' employees and to take them "off the list";
3. monitoring compliance at the conspirators' respective HR departments and alerting them of instances of recruitment; and
4. instructing employees, for example, "that although the candidate 'look[ed] great' [we] 'can't poach her.'"

The criminal indictment asserts these agreements constitute per se illegal horizontal conspiracies in violation of Section 1 of the Sherman Antitrust Act. The Sherman Act imposes criminal penalties of up to $100 million for a corporation and $1 million for an individual, along with up to 10 years in prison. This is the first criminal indictment based solely on no-poach agreements brought by DOJ and it is the culmination of policy pronouncements by DOJ and FTC over four years ago.

October 2016 Antitrust Guidance for HR Professionals

The DOJ and the FTC issued in October 2016 its joint "Antitrust Guidance for Human Resource Professions" ("HR Guidance"). The HR Guidance provided "[a]greements among employees not to recruit certain employees or not to compete on terms of compensation are illegal." It made clear that the concern applied to "competitors in the employment marketplace," thus such restraints are illegal "regardless of whether the firms make the same products or compete to provide the same services." The HR Guidance further provided that "an 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 companies' employees (so called "no poaching" agreements)."

Prior to the HR Guidance, DOJ previously had brought civil, but never criminal, enforcement actions arising out of no-poach or non-solicitation agreements, primarily against technology companies such as eBay and Intuit, Lucasfilm and Pixar, and Adobe, Apple, Google, and others. The HR Guidance provided that "[g]oing forward, the DOJ intends to proceed criminally against naked wage-fixing or no poaching agreements." Although DOJ has the authority to enforce the antitrust laws civilly or criminally, criminal enforcement is restricted to hardcore cartel conduct, such as price fixing or customer allocation. The HR Guidance announced DOJ's policy that going forward it would consider naked no-poaching agreements as fitting within this category of hardcore cartel conduct that rises to the level of criminal conduct. DOJ stated in the HR Guidance that it might: "in the exercise of its prosecutorial discretion, bring criminal, felony charges against the culpable participants in the agreement, including both individuals and companies."

Employer Considerations

Despite periodic statements by DOJ over the four years following issuance of the HR Guidance that criminal enforcement actions would be brought, no such indictments were forthcoming until the SCA indictment last week. The SCA indictment over no-poach agreements reconfirms enhanced regulatory scrutiny of such restraints between companies concerning the solicitation, recruitment, and hiring of employees, including the increased potential of criminal enforcement. As a result, employers should consider:

• reexamining and refining clear corporate compliance policies prohibiting such no-poach agreements.
• regularly communicating to all employees, reinforcing with periodic training, and periodically auditing policies prohibiting such agreements, as recommended with all antitrust compliance policies.

In July 2019, DOJ announced a new policy in which it would "consider compliance at the charging stage in criminal antitrust investigations." The SCA indictment combined with DOJ's policy to incentivize corporate antitrust compliance provides a strong reason to reexamine and strengthen antitrust compliance policies.

We Can Help

Please contact any of the related Maslon attorneys listed below if you need help ensuring your policies are in compliance with antitrust regulations or if you have other competition law concerns or questions.