Two recent federal criminal indictments have captured the attention of both antitrust and employment lawyers, as well as the legal and business community nationwide. The cases – both in the U.S. District Court for the Northern District of Texas – demonstrate that the U.S. Department of Justice is escalating its focus on so-called wage-fixing and no-poach agreements. This is an important development to be aware of because (1) the Department of Justice treats wage-fixing and no-poach agreements as per se illegal, meaning that they violate the law regardless of whether there is any anti-competitive effect, and (2) companies may be held liable for these agreements even if they are formed between lower-level employees.
In December 2020, a federal grand jury levied the first indictment against Neeraj Jindal, the former owner of a staffing company that contracted with various health care agencies to provide physical therapists for in-home health care services. According to the indictment, Jindal conspired with at least one other physical therapist staffing company to artificially lower the rates paid to their physical therapists and physical therapist assistants, so that the staffing companies could increase the margins on their contracts with health agencies.
Then, in January 2021, a second federal grand jury indicted Surgical Care Affiliates LLC (SCA), which owns and operates outpatient medical care centers across the United States, for allegedly agreeing with competitors not to solicit senior-level employees from one another. According to the indictment, SCA entered into at least two separate conspiracies, one with a company based in Dallas, Tex., and the second with a company based in Denver, Colo. Both of SCA’s no‑poach agreements allegedly existed for several years, and no one attempted to keep them a secret. For example, according to the indictment, human resources representatives at all of the companies involved routinely told recruiters that they could not violate the agreement, even when candidates “looked great.”
At its most basic level, federal antitrust law prohibits companies from agreeing not to compete against one another. That prohibition extends, of course, to agreements not to compete in the employment market. Thus, agreements between companies that fix employee compensation (wage-fixing agreements) and agreements among companies not to solicit or hire each other’s employees (no-poach agreements) can violate federal antitrust laws. Importantly, both wage-fixing and no-poach agreements could be found to be illegal without any inquiry into their anti‑competitive effects. What’s more, companies may be held liable no matter the level at which these agreements are formed – even if between low level employees – and regardless of whether they are written or formally memorialized. The government may argue that evidence of discussions of such matters or of parallel behavior is enough to support an inference that the companies entered into an anticompetitive agreement.
Although the federal government has increasingly enforced antitrust laws in the employment market in the past few years, these criminal indictments significantly raise the stakes, and underscore the seriousness with which the federal government views these violations. In the past, the Department of Justice has filed civil enforcement actions against companies that it found to be engaging in wage-fixing or no-poach agreements, and those cases routinely ended in consent decrees. But these criminal indictments are a significant escalation from that practice. Not only did the Department of Justice criminally charge a business, but it brought criminal charges against an individual business owner, who now faces up to ten years in prison.
This issue continues to be an area of focus for both antitrust enforcers and plaintiffs’ attorneys, and any proposed agreements or even discussions with third parties – especially competitors in the employment market – that touch on employee compensation or hiring need to be reviewed carefully to assess potential risk. This is true even if the agreements are thought to be common in the industry. The Schiff Hardin team will continue to monitor these and any other similar cases as they arise.