District Court Holds that No-Poach Agreements Can Constitute Criminal Antitrust Violations
February 16, 2022
On January 28, 2022, a federal district court endorsed for the first time the Department of Justice’s view that no-poach agreements can constitute criminal antitrust violations. Senior Judge R. Brooke Jackson of the United States District Court for the District of Colorado denied a motion to dismiss an indictment against DaVita, Inc. and its former CEO Kent Thiry. See U.S. v. DaVita, Inc., Case No. 1:21-cr-00229-RBJ, ECF No. 132 (January 28, 2022) (Order Denying Motion to Dismiss). The three-count indictment charges defendants with violating Section 1 of the Sherman Act by participating in “market allocation” agreements from February 2012 through July 2019. See ECF No. 74 (Superseding Indictment). Count One alleges that defendants agreed with owners and operators of outpatient medical facilities throughout the country not to solicit the senior employees of co-conspirators. Count Two is substantially similar, but applies to all employees rather than just senior employees. Count Three is identical to Count 2, but adds a different co-conspirator.
Defendants challenged the indictment on the grounds that it failed to allege a per se illegal offense. They contended that non-solicitation agreements can be procompetitive, and treating non-solicitation agreements as per se illegal would violate defendants’ due process rights because there is no precedent for criminal prosecution of this type of conduct. In rejecting these arguments, the court held that so-called “naked” no-poach agreements constitute horizontal market allocations and should be analyzed as per se violations of Section 1. ECF No. 132 at 9-14, 17. Non-solicitation and no-hire agreements are “naked” if they are stand-alone agreements between competitors. The court held that these agreements may be per se illegal and can be prosecuted criminally. Id. No-poach agreements that are “ancillary,” meaning that they are related to, or reasonably necessary for, a separate, legitimate transaction or collaboration, are evaluated under the civil “rule of reason.”
The Colorado district court’s order comes at a time when DOJ has been ratcheting up its enforcement in the no-poach area. Since the first-ever criminal indictment issued in January 2021 against Surgical Care Affiliates, DOJ has brought criminal charges against ten companies and individuals: medical care staffing service Advantage on Call in March 2021, DaVita and Thiry in July 2021, and most recently, six executives and managers from Raytheon and other aerospace firms in December 2021. SCA filed a motion to dismiss in March 2021, raising similar arguments to the ones in the DaVita case. Notably, DOJ filed a notice of supplemental authority on February 1, 2022, citing the DaVita decision as support for its opposition to defendants’ motion to dismiss. That motion is still pending.
The order in DaVita may invite further criminal challenges to no-poach agreements, particularly given the growing focus of the DOJ in enforcing antitrust laws in labor markets. Jonathan Kanter, the recently appointed head of the US DOJ Antitrust Division, said at a recent joint FTC and DOJ conference on antitrust enforcement in labor markets that he plans “to build on the work of the last several years in which the division has begun to increase its substantive knowledge of labor issues and an enforcement capacity in labor markets” and that “[m]oving forward, you can expect that rooting out labor market [collusion] will remain a top priority for the division and [division] prosecutors will continue to bring and…prosecute labor market cases.” O’Melveny has robust antitrust and labor and employment practices and is prepared to assist clients in navigating this evolving legal landscape.
This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Anna T. Pletcher, an O’Melveny partner licensed to practice law in California, Julia Schiller, an O’Melveny partner licensed to practice law in the District of Columbia, New York, and New Jersey, and Laura K. Kaufmann, an O’Melveny associate licensed to practice law in California, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.
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