Recent DOJ Action in the No-Poach Arena

In 2016 the Department of Justice (DOJ) and the Federal Trade Commission (FTC) published their Antitrust Guidance for Human Resource Professionals, warning of criminal remedies for those participating in illegal no-poach agreements. Recently, the DOJ and FTC made good on that promise by filing the first public criminal indictment alleging a conspiracy between companies in which they agreed not to poach each other’s employees. The DOJ and FTC warned they could take such actions when “naked” wage-fixing and no-poach agreements were per se illegal violations under the antitrust laws.

The indictment was filed in the U.S. District Court for the Northern District of Texas, U.S. v. Surgical Care Affiliates LLC et al.  The first count alleges that from as early as May 2010 to October 2017 defendants and a Texas-based company engaged in a conspiracy to suppress competition between them by agreeing not to solicit each other’s senior-level employees. The second count alleges that defendants had a similar agreement with a Colorado-based company between February 2012 and July 2017. The indictment alleges several ways that defendants carried out its no-poach agreements including, instructing recruiters not to solicit senior-level employees from each other’s companies, requiring senior-level employees who applied to the other company to notify their boss that they were seeking other employment before their application would be considered, monitoring compliance with the no-poach agreement, and refraining from soliciting each other’s senior-level employees. The outcome of the indictment is not yet known and the DOJ’s investigation continues.

The DOJ also recently filed an amicus brief in the Eleventh Circuit seeking to ensure the court adopts the DOJ’s views regarding the Sherman Act’s Section 1 concerted action requirement. The appeal is from a district court decision ruling that Burger King and its franchisees are incapable of conspiring with each other because they are a single entity given their mutual interest in promoting the Burger King brand. Under the single entity rule established by the Supreme Court’s decisions in Copperweld and American Needle, legal entities that have a common unity of interest cannot be found capable of conspiring in violation of Section 1.

The district court found Burger King was incapable of concerted action with its franchisees because its “relationship with its franchisees more closely resembles a corporation organized into divisions or de facto branches, or that of a parent-subsidiary [i.e., Copperweld], than the relationship between similarly-situated NFL teams [i.e., American Needle].” The DOJ claims the district court improperly distinguished and misconstrued American Needle as requiring a court to consider whether participants are capable of concerted action for all purposes as opposed to focusing on the challenged restraint. The DOJ contends that American Needle declined to consider whether the NFL as a whole operated as a single entity and instead focused on whether NFL teams were capable of concerted action regarding licensing of NFL teams’ intellectual property.  With this focus, the court found that the NFL teams were subject to Section 1. The DOJ maintains that apart from the no-hire provision, there was nothing preventing Burger King and its franchisees from making their own employee hiring decisions. Therefore, under American Needle, Burger King and its franchisees should be found as separately controlled, potential competitors not subject to the single entity rule.

The DOJ’s decision to involve itself in yet another private litigation is notable and continues a trend of DOJ interest and involvement in no-poach/no-hire litigations.

The full article in its original form can be found here.

A. Christopher Young is a partner at Troutman Pepper (Philadelphia office). His involves many areas, including antitrust, admiralty, commercial disputes, franchise/distribution issues, and products liability

Jan P. Levine is a partner at Troutman Pepper (Philadelphia office). Jan is a first-chair litigator and former co-chair of the Commercial Litigation Department. She is particularly experienced in advising and defending health care clients and agricultural industries in complex, multidistrict class actions. These cases often have industry-wide implications.

Robyn R. English-Mezzino is an associate at Troutman Pepper (Princeton office). Her practice involves counseling a broad range of clients in business litigation and providing advice on legal questions impacting commercial businesses.

Leave a Comment