On October 27, 2022, VDA OC, LLC, (VDA) a Nevada health care staffing company, pleaded guilty to participating in a conspiracy to suppress and eliminate competition for the services of school nurses.  According to the plea, VDA and an unnamed competitor agreed not to recruit or hire each other’s nurses and to refrain from raising wages of the nurses. The United States District Court for the District of Nevada sentenced VDA to pay $134,000, consisting of a $62,000 criminal fine and $72,000 in restitution to nurses impacted by the agreement.  The criminal fine represents a percentage of VDA’s volume of commerce during the approximately 9 months the agreement was in place.  Federal sentencing guidelines provide for a base fine of 20 percent of affected commerce that can be adjusted based on a number of sentencing factors and can be substantial.

This is the DOJ’s first successful criminal prosecution in a labor-focused antitrust case. In 2016, in a joint statement with the Federal Trade Commission, the DOJ announced its intent to criminally prosecute agreements between employers not to poach each other’s employees (no-poach agreements) or fix wages as per se violations of the Sherman Antitrust Act. Prior to that announcement, such agreements were the subject of civil enforcement actions, if at all, which carry no risk of prison time for individuals. As we previously reported here, the DOJ’s first two criminal no-poach trials ended in acquittals of any antitrust crimes for the indicted companies and individuals.

Despite those acquittals, the DOJ has appeared undeterred in investigating no-poach and wage fixing agreements, and the result in this case may well further embolden its criminal enforcement in the labor space. Ballard Spahr’s Antitrust and Labor and Employment Groups are prepared to answer questions regarding antitrust issues in the context of the labor market. Please contact us if we can assist you in understanding your company’s legal requirements and the measures your business should take to remain in compliance with applicable law.

The United States indicted DaVita, Inc., and Kent Thiry, DaVita’s former Chief Executive Officer, last year alleging that they had violated Section 1 of the Sherman Act by engaging in “Conspiracy in Restraint of Trade to Allocate Employees.” The essential elements of the criminal charges were alleged agreements with competitors not to poach each other’s employees.

The trial began that on April 4, 2022, was among the first of its kind since the Department of Justice (DOJ) and the Federal Trade Commission (FTC) issued guidance in 2016 stating that the DOJ would prosecute naked no-poaching or wage-fixing agreements. On April 15, 2022, a federal jury found both DaVita and Thiry not guilty of criminal conspiracy. Additionally, on April 14, 2022, a federal jury in Texas found the owner of a physical therapy staffing company, Neeraj Jindal, and John Rodgers, a former clinical director of the company, not guilty of criminal charges related to employee wage-fixing.

While these verdicts may signal that juries are skeptical of the government’s efforts to criminally prosecute companies or individuals in these labor/employment cases, it is unlikely that the DOJ will cease pursuing these types of matters.

Ballard Spahr’s Labor and Employment and Antitrust Groups are prepared to answer questions regarding antitrust issues in the context of the labor market, as well as non-solicitation and no-poach provisions and have written a full alert on this matter here. Please contact us if we can assist you in understanding your company’s legal requirements and the measures your business must take to remain in compliance with applicable law.

 

The latest episode of Business Better is a discussion of “no-poach” agreements – agreements between competitors that neither will hire the other’s employees. We’ll discuss the different types of such agreements, their enforceability under antitrust and other laws and the possibility of criminal prosecution arising from their use, and how to protect a business from poaching without running afoul of the law.

John Wright, a member of the firm’s Securities and M&A groups hosts the discussion. Joining John are David Fryman, a Partner in Ballard’s Philadelphia office who represents employers in all types of labor and employment matters, and Jim Mitchell, a Partner in Ballard’s New York office who focuses on criminal and civil litigation in a broad range of areas, including criminal prosecutions under the antitrust laws.

Whether employee no-poach agreements are illegal per se is being tested in a criminal case, U.S. v. Surgical Care Affiliates LLC et al., drawing the attention of many interested parties, including the United States Chamber of Commerce (Chamber).

In 2016, the Federal Trade Commission (FTC) and the Department of Justice, Antitrust Division (DOJ or the Division) released joint guidance signaling that agreements between competing employers that “limit or fix the terms of employment” for prospective employees may violate antitrust laws.  The guidance went on to note that wage fixing and agreements between competitors not to poach each other’s employees are “per se illegal under antitrust laws.”  Under the Antitrust Division’s own policy, only per se violations of the Sherman Antitrust Act are prosecuted criminally.

In an indictment brought earlier this year, DOJ charged Defendant Surgical Care Affiliates (SCA) with criminal antitrust violations for entering into agreements with competing businesses not to poach the other’s senior level executives.  In its motion to dismiss, SCA highlighted that the relevant agreements were entered into over four years before the 2016 guidance was released, so it would be unfair to view that guidance as notice of the allegedly wrongful nature of the conduct at issue.

On April 2, 2021, the Chamber filed a proposed amicus brief supporting SCA’s motion to dismiss the indictment.  In its brief, the Chamber argued that, by declaring a new per se criminal offense, DOJ has usurped the decision-making authority vested in Congress and the courts. Additionally, the Chamber asserted that DOJ’s prosecution falls “short of the fair notice that due process requires” by criminally prosecuting a practice not firmly established by courts as per se illegal at the time the conduct occurred.

The DOJ is once again signaling its desire to increase antitrust enforcement efforts of no-poach agreements and similar measures by employers to retain talent.  Review our previous coverage of antitrust enforcement actions here.

In May 2022, Colorado legislators passed a law that bans employee non-compete clauses for workers making less than six figures annually.  Governor Jared Polis (D) signed the bill into law on June 8, 2022, giving it an effective date of August 10, 2022.

In short, HB 22-1317, imposes an income-based minimum on enforceable non-compete agreements between employers and employees.  The new restrictions apply to employment contracts signed or renewed after the legislation’s effective date. 

Colorado law already limited the use of non-competes to executives, corporate officers, and their professional staff, but this latest measure adds a “highly compensated” standard that will start at $101,250 and increase annually a figure that will be indexed and set by the Colorado Department of Labor for “highly compensated” employees and will increase proportionately to inflation. 

As companies evaluate their employment practices and operate in remote work environments, it is also worth noting that choice-of-forum and choice-of-law provisions applicable to non-competes may not mandate adjudication outside of Colorado, if the worker primarily resided or worked in Colorado at the time their employment was terminated. This could pose a special challenge for employers which are increasingly relying on a remote workforce.

The Colorado law sets a lower bar for non-solicitation clauses that prevent employees from poaching their former employer’s customers, allowing businesses to impose those restrictions on workers making up to 60% of the “highly compensated” standard, i.e. $60,750 for 2022.

The new Colorado law leaves untouched existing exceptions for restrictive covenants imposed as part of the sale of a business or its assets, or to protect trade secrets.

The law marks a trend in state-level action addressing non-compete agreements: 10 other states have passed laws in the last six years to ban non-competes for low-wage workers, although the income thresholds in those laws vary widely from about $30,000 of annual income in New Hampshire, $75,000 in Illinois, to $100,533 in Oregon, and now Colorado.  Note that Colorado was the first state to criminalize the use of non-competes exceeding the permissible scope of Colorado state law.  To read more about that development, see our earlier Alert here.

Ultimately, employers must be cognizant of the state laws that apply to their restrictive covenant agreements in a legal landscape that is increasingly a patchwork of incongruent laws.  Choice of forum provisions and choice of law provisions represent a potential option for certain employers seeking streamlining, but their enforceability depends on state laws.