As far as criminal price fixing cases brought by the Antitrust Division, the indictment in US. v.. Neeraj Jindal, Case 4:20-cr-00358 (E.D. Texas, filed 12/9/20)(press release and indictment link here) would seem remarkable only in how insignificant the alleged conspiracy time period and volume of commerce are. Jindal was the owner of a therapist staffing company in the Dallas-Fort Worth metropolitan area. He is charged with conspiring “from in or around March 2017 to in or around August 2017” by “agreeing to fix prices by lowering the pay rates” to physical therapists and physical therapists assistants. The indictment does not allege a volume of commerce. The indictment charges a second count of obstruction of justice alleging, “Specifically, the Defendant made false and misleading statements to the FTC and withheld and concealed information from the FTC.” The obstruction involved lying to the FTC, which began the wage-fixing investigation. The Department of Justice became involved since the FTC cannot bring criminal cases.
This is a small case with big implications. First, and this cannot be repeated enough, lying to federal agents during the investigation is a sure way to make a criminal prosecution attractive. Destroying documents, allowing yourself to be questioned without an attorney present (or lying about a material fact even if one is present) are all very bad ideas. This is an old message that is worth repeating. The real significance of the case, however, is that it is a partial answer to the question “Whatever happened to the criminal antitrust no-poach/wage fixing cases the Antitrust Division was warning about for the last several years?” This wage-fixing case, while very small in scope and commerce, speaks loudly of the Antitrust Division’s prosecutorial intent in this area. A little bit of the history of the Antitrust Division’s prosecutorial intent with respect to no-poach cases follows.
In 2010, Adobe, Apple Google, Intuit and Pixar entered into settlement agreements with the Department of Justice. The Antitrust Division reached settlements with six high technology companies – Adobe Systems Inc., Apple Inc., Google Inc., Intel Corp., Intuit Inc. and Pixar – that prevented them from entering into no solicitation agreements for employees. According to the civil complaint, the six companies entered into agreements that restrained competition between them for highly skilled employees. The agreements between Apple and Google, Apple and Adobe, Apple and Pixar and Google and Intel prevented the companies from directly soliciting each other’s employees. An agreement between Google and Intuit prevented Google from directly soliciting Intuit employees. The investigation uncovered evidence such as an email exchange wherein Steve Jobs asked Eric Schmidt to stop Google from trying to hire one of Apple’s engineers: “I would be very pleased if your recruiting department would stop doing this,” Jobs wrote to Schmidt on March 7, 2007. Schmidt then sent the request to his HR department, saying “I believe we have a policy of no recruiting from Apple and this is a direct inbound request. Can you get this stopped and let me know why this is happening? I will need to send a response back to Apple quickly so please let me know as soon as you can.” A civil class action case followed the government’s case (as they usually do) which the companies later settled for $415 million. CNET, September 3, 2015, Lance Whitney, Apple, Google, others settle antipoaching lawsuit for $415 million.
Fast forward to October 2016, when the United States’ Department of Justice’s Antitrust Division and Federal Trade Commission issued guidance regarding the application of U.S. antitrust laws to no‑poaching and wage-fixing agreements between employers. This joint guidance indicated that “Going forward, the Justice Department intends to criminally investigate naked no-poaching or wage-fixing agreements that are unrelated or unnecessary to a larger legitimate collaboration between the employers.” DOJ/FTC Press Release, October 20, 2016 Justice Department and Federal Trade Commission Release Guidelines for Human Resource Professionals on How Antitrust Law Applies to Employee Hiring and Compensation. In a speech in January 2018, Principal Deputy Assistant Attorney General Andrew Finch stated that “the Division expects to pursue criminal charges” for agreements that began after October 2016, as well as for agreements that began before but continued after that date. On April 3, 2018, the Antitrust Division filed a civil antitrust lawsuit against Knorr-Bremse AG and Westinghouse Air Brake Technologies Corp. (“Wabtec”), and with it simultaneously filed a civil settlement. The complaint alleged that these companies and a third company, Faiveley, reached naked no-poach agreements beginning as early as 2009 and continuing until at least 2015. Because the conduct ended before the Division’s guidance of October 2016 regarding possible criminal prosecution, the case was pursued civilly.
The Antitrust Division, however, continued to warn about potential criminal actions in this area. The Antitrust Division Spring Update 2018 stated, “Market participants are on notice: the Division intends to zealously enforce the antitrust laws in labor markets and aggressively pursue information on additional violations to identify and end anticompetitive no-poach agreements that harm employees and the economy.” At a January 19, 2018 Antitrust Research Foundation Conference, Assistant Attorney General Makan Delrahim, announced that the DOJ would bring its first criminal cases involving alleged “no poaching” agreements in violation of the Sherman Act in the coming months. In particular, AAG Delrahim warned that if such activity “has not been stopped and continued from the time when the DOJ’s [new antipoaching] policy was made” in October 2016, “we’ll treat that [conduct] as criminal.” He added, “I’ve been shocked about how many of these [agreements] there are, but they’re real.”
While the Antitrust Division has not filed any criminal no-poach cases, it did intervene in a private no-poach case in November 2019. A November 8, 2019 DOJ Press Release recounted that a on Sept. 25, 2019, a federal district court in North Carolina entered a unique final judgment in a private no-poach class action that approved the parties’ settlement agreement and allowed the United States to enforce the injunctive relief and compliance provisions of the settlement agreement. The settlement followed the Justice Department’s successful intervention in the case, which challenged alleged agreements between Duke University and the University of North Carolina not to compete for each other’s medical faculty. Seaman v. Duke University and Duke University Health System, Case No. 1:15-cv-000462-CCE-JLW (M.D.N.C.).
In the Division Update Spring 2019, the Division noted that it had filed statements of interest in civil cases. Many private litigants brought no-poach cases after the Division had brought the issue to light. In its statement of interest, the Division argued that a franchisor and franchisee are not automatically deemed to be a single entity and can be separate entities capable of conspiring within the meaning of Section 1. The United States also argued that naked, horizontal no-poach agreements between rival employers within a franchise system are subject to the per se rule. A restriction in a franchise agreement that forbids franchisees from poaching each other’s employees, however, is subject to the rule of reason in the absence of agreement among the franchisees because it is a vertical restraint. If there is alleged agreement among the franchisees, the restraint is subject to the rule of reason so long as it is ancillary; that is, separate from, and reasonably necessary to, the legitimate franchise collaboration. Moreover, the Division argued that the “quick-look” form of rule of reason analysis is inapplicable because the court should weigh the anticompetitive effects against the procompetitive benefits of franchise no-poach agreements that qualify as either vertical or ancillary restraints.
Many State AG’s also began investigating no-poach agreements, particularly in the fast-food industry. In a March 12, 2019 press release, California Attorney General Xavier Becerra announced that the State of California, as part of a multistate effort, had entered into agreements with four major fast food companies that prohibit those franchise corporations from continuing to employ “no-poach” policies. “Many of these anticompetitive no-poach provisions required franchise operators to contractually agree to not hire or solicit the employees of another franchise operator. As a consequence, employees, many of whom are low-wage workers, may have been unable to seek better pay and benefits by going to work for a competing franchise. Workers are often unaware of these provisions in the contracts. As a result of the settlements, Arby’s, Dunkin’, Five Guys, and Little Caesars will no longer include no-poach provisions in any of their franchise agreements in the United States.”
While there still had not been any criminal antitrust no-poach indictments, as late as October 29, 2019, an Antitrust Division official testified before Congress that, “The Division has a number of active criminal investigations into naked no-poach and wage-fixing agreements. While we cannot comment on the status or the timing of these investigations, I want to reaffirm that criminal prosecution of naked no-poach and wage-fixing agreements remains a high priority for the Antitrust Division.”
As of this date, December 2020, the Antitrust Division still has not brought a criminal prosecution of a no-poach agreement. There has been no public announcement as to why the promised cases have not materialized. It’s possible that there are no-poach agreements still being considered for possible criminal prosecution. It is my guess, and it is only a guess, that upon final examination, and with the threat of a vigorous defense challenge in court, the Division decided not to risk any assault on the per se rule by bringing a no-poach case that a defense team might successfully characterize as having some pro-competitive benefits. A naked wage-fixing indictment, such as the Jindal indictment the Division just announced, pretty clearly falls in to the per se box. There is no arguable pro-competitive benefits from an agreement simply to fix/reduce employees’ wages. No-poach agreements, however, may contain some arguably pro-competitive benefits such as inducing a franchise owner to train employees, secure in the knowledge that they won’t be “poached” away with the employer losing the benefit of the training. The Antitrust Division will no doubt be very careful to indict only clearly per se cases. The per rule is under enough attack in traditional price fixing/bid rigging cases without pressing the issue with arguably ambiguous or novel cases. See, Robert E. Connolly, Competition, Spring 2020, Volume 30, No 1, at 177, In the Clash Between the Venerable Per Se Rule and the Constitution, The Constitution Shall Prevail (In Time)
- If you want to make yourself a test case establishing a prosecutorial principle, do what this defendant allegedly did. Leave a text/email trail memorializing the agreement to lower employees’ wages. Then, while representing yourself during the investigation, make false statements to the FTC denying the agreement. If the defendant had had an attorney, cooperated with the FTC and admitted his conduct, it is quite possible this matter may have been resolved as a civil case.
2. This is a very small case in terms of commerce for the Antitrust Division. But the indictment has put the business community on notice that naked wage-fixing agreement may be prosecuted as criminal matters. The Antitrust Division will commit resources, even in relatively small markets, to protect workers when the facts show a naked restraint. This statement from the Antitrust Division’s Spring Update 2018 is undoubtedly still true today, “Market participants are on notice: the Division intends to zealously enforce the antitrust laws in labor markets and aggressively pursue information on additional violations to identify and end anticompetitive no-poach agreements that harm employees and the economy.”
- The COVID pandemic has further focused the government’s attention on protecting labor markets from unlawful restraints. On April 13, 2020 the FTC and DOJ Issued a Joint Statement announcing that they are on the alert for Collusion in the US Labor Markets. According to a press release, challenges to anticompetitive conduct in labor markets by the DOJ and FTC agencies will include:
- Unlawful wage-fixing and “no-poach” agreements
- Anticompetitive non-compete agreements
- Unlawful exchange of competitively sensitive employee information
- Inviting other individuals and companies to collude
- Actions and conduct that harms competition
“The Division will use its enforcement authority to ensure that companies and individuals who distort the free market for labor are held to account,” said Assistant Attorney General Makan Delrahim of the DOJ’s Antitrust Division. The Agencies made it clear that “COVID-19 does not provide a reason to tolerate anticompetitive conduct that harms workers, including doctors, nurses, first responders, and those who work in grocery stores, pharmacies, and warehouses, among other essential service providers on the front lines of addressing the crisis.
No one should assume that because no criminal antitrust case has been brought based on a no-poach agreement that one will never be. And even if a criminal per se case is not brought, no-poach agreements may be challenged as civil antitrust violations. And now, a wage-fixing case has been brought criminally. The DOJ and FTC will be on the look-out for any anticompetitive agreements that victimize front line Covid-19 workers. A criminal case, where one is justified, would certainly be a strong deterrent because penalties for individuals for a criminal conviction include a jail sentence of up to 10 years and a criminal fine oof $100,000. Corporations can be fined up to $100 million, and in certain situations, possibly even more.
If you are interested in an article recounting the history of no-poach agreement as antitrust violations, see, “No-Poach Agreements as Sherman Act Violations: How We Got Here and Where We’re Going, Jamie Chen, Competition: Fall 2018, Vo. 28, No.1.
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