The U.S. Department of Justice (DOJ) filed its first-ever criminal charges alleging a group of employers agreed not to hire away each other’s senior-level employees.
The DOJ’s Antitrust Division charged Surgical Care Affiliates (SCA), one of the largest outpatient surgery providers in the U.S., with entering into agreements with competitors not to poach each other’s executive talent, in violation of federal antitrust law.
No-poaching agreements—when employers agree not to hire workers from one another—make it harder for workers to be recruited by their employer’s competitors or negotiate better terms of employment.
From 2010 to 2017, SCA allegedly conspired with a Texas health care company not to solicit each other’s executives. SCA allegedly reached a similar deal with a Colorado company between 2012 and 2017, according to the DOJ.
“The Department of Justice is carrying out its promise to prosecute illegal no-poaching agreements between companies,” said David Reichenberg, an attorney in the New York City office of Cozen O’Connor and co-chair of the firm’s antitrust practice. “Until [this case], DOJ had brought only civil enforcement actions against companies that have allegedly entered into agreements not to hire or solicit talent from one another. This prosecution signals that DOJ is moving to criminal prosecutions to regulate these problematic practices.”
A violation of the federal antitrust law (the Sherman Act) carries a maximum $100 million penalty. The fine may be increased to twice the gain derived from the crime or twice the loss suffered by victims if either amount is greater than the statutory maximum.
Reichenberg explained that the conspiracy in this case allegedly consisted of phone and e-mail exchanges between HR professionals, instructions not to solicit certain employees, and monitoring of employees. “For example, the agreement allegedly required senior-level employees to notify their respective employers that they were seeking new employment for their application to be considered by the other companies participating in the arrangement,” he said.
The DOJ conducted a public relations campaign in 2016 warning companies that it is illegal for employers to agree to fix wages or to not hire one another’s workers. Those agreements—whether entered directly or through a third party such as a recruitment firm or trade association—violate antitrust laws and could lead to criminal prosecution against individuals and employers. At the same time, the antitrust division released guidance for HR professionals on the issue.
The charges against SCA follow a December 2020 indictment against a therapist staffing company in Texas for attempting to fix wages with competitors.
The focus on labor collusion will likely only increase under the Biden administration, as the new president has indicated that he would be more aggressive in minimizing employers’ use of noncompetition clauses in employment contracts.
Reichenberg said that to avoid criminal liability, employers should review their practices and implement the following measures:
- Policies that expressly prohibit no-poaching agreements. “Incorporate guidelines on how to avoid such agreements and report violations, and inform third-party intermediaries involved in hiring, such as recruitment consultants, about your policies,” he said.
- Training for management and HR professionals on identifying collusion. “For example, a competitor’s seemingly innocuous offer to not recruit a prospective employee to avoid a bidding war could expose the individual and company to liability,” Reichenberg said.
- An internal investigation to ensure there are no existing violations or informal communications suggesting such agreements or understandings.
- Periodic reviews to ensure policies are applied and violations promptly remediated.
“Strong compliance programs will position companies to benefit from the DOJ’s recent policy of crediting effective compliance programs if a violation occurs,” said Joel Mitnick, a partner in the New York City office of Cadwalader.