Justice Department suggests employee non-competition could be criminally prosecuted | Hogan Lovells
As explained in previous Hogan Lovells alerts, the DOJ has in recent years expanded its review of agreements that restrict the solicitation, wages, or movement of employees.1 This expansion has included an increase in criminal investigations and prosecutions for non-poaching agreements, wage-fixing and other “naked conspiracies in labor markets”2 which, according to the DOJ, should be treated as violations of antitrust laws in themselves. Federal Courts in Texas3 and colorado4 recently supported this argument by arguing that wage-fixing and non-poaching agreements are among the types of agreements that are inherently illegal and can be prosecuted criminally.
DOJ Expression of Interest
The DOJ’s declaration of interest for the Pickert expands the potential universe of per se antitrust violations that the DOJ can target to promote worker mobility. The plaintiffs in this case provide anesthesiology services to Renown Regional Medical Center under an exclusive Professional Services Agreement (PSA) between Pickert and Renown. The PSA would contain a provision prohibiting plaintiffs from providing anesthesiology services for two years at any facility within 25 miles of Renown’s facilities or any other facility where the anesthetist worked before terminating his employment ( the non-competition provision). In October 2021, Renown notified Pickert that he intended to terminate the PSA, and the plaintiffs later sued in Nevada state court to try to prevent Pickert from enforcing the non-competition clause. of the PSA. The plaintiffs allege that the PSA violates a Nevada state law limiting non-competition clauses.5
The DOJ’s Statement of Interest does not take a position on the merits of the case, but rather aims to demonstrate how “the principles of federal antitrust law can be helpful in the Court’s assessment of [the Nevada state law] claims.” The DOJ argues that the non-competition clause may violate federal law either by virtue of an analysis per se, traditionally applied only to “naked” agreements between competitors, or by virtue of the standard of the rule of reason applied to other competitive restraints.
Analysis in itself
The DOJ first argues that the non-competition clause is considered a horizontal restraint between competitors because the board-certified and licensed anesthesiologists were “actual or potential competitors of Pickert when they agreed to the non-competition “. Viewed in this light, according to the DOJ, the non-competition provisions “could be characterized as ‘agreements’ to assign Pickert the area within a 25-mile radius of Renown or any other facility where the anesthesiologists employed by Pickert and thus constitute horizontal agreements to allocate territories subject to the per se rule, unless the ancillary restraints defense applies.6
Analysis of the rule of reason
Even if Pickert presents a successful collateral restraints defense, the DOJ argues that a court could still conclude that the restraints are unreasonable and unlawful, based on a rule of reason analysis. In support of this assertion, the DOJ argues that (1) the plaintiffs’ claims suggest that the non-competition agreements restrict a significant share of the market for anesthesiology services7 (2) Defendants’ pro-competitive rationale for the non-competition clause – characterized by the DOJ as “protecting[ing] the interest of the employer in its investment in competition” is insufficient; and (3) any purported pro-competitive effectiveness can be achieved through less restrictive means, such as the non-interference and non-solicitation clauses that already exist in the CSP.
The DOJ’s statement of interest in the case — its first statement filed in 2022 — is the latest signal that the agency intends to significantly increase its antitrust enforcement efforts in U.S. labor markets. Although the DOJ does not refer to criminal liability or prosecution in its Statement of Interests, the DOJ’s position that non-competition agreements may per se be illegal could be a first step toward criminal review of cases. of non-competition, which would constitute a significant extension of criminal liability to a joint commercial agreement. Although the DOJ has never brought a criminal case for a non-competition agreement with an employee, it has incorporated restrictions on the use of such agreements into an action resolving a market sharing conspiracy case – a resolution presented by Assistant Deputy Attorney General Richard A. Powers in an October 2021 Speech.8 With his declaration of interest for the Pickert case, it seems poised to take the next step by directly targeting non-compete agreements as per se violations of antitrust laws.
3 United States vs. Jindal20-cr-00358 (ED Tx).
4 United States against Davita, 21-cr-0229 (D.Co.).
5 Nov. Rev. Stat. §613.195
6 Such a defense would require demonstrating that the non-competition clauses of the LSP are subordinated and collateral to a distinct and legitimate transaction, and that they are necessary to achieve the pro-competitive objective of these transactions. The DOJ argues that even if the non-competition clause is found to be contingent and collateral to a separate, legitimate transaction (such as the PSA), a court could consider a number of different factors that demonstrate that the restraints at issue in that case are not reasonably necessary to achieve pro-competitive objectives. These factors include: (1) length of restraints; (2) whether the non-competition clauses are sufficiently tailored to the interests they are intended to protect; and (3) whether the non-competition furthers the interests claimed by the employers.
7 The DOJ says the allegations suggest that the non-competitions “collectively occupy about two-thirds of all permanently employed anesthesiologists in Northern Nevada, thereby constituting a significant restriction on competition for anesthesiology services in the marketplace.” concerning “.
8 Department of Justice, Office of Public Affairs, “Acting Assistant Attorney General Richard A. Powers of the Antitrust Division Delivers Remarks at Fordham’s 48th Annual Conference on International Antitrust Law and Policy,” (October 1, 2021) available at https:// www .justice.gov/opa/speech/acting-assistant-attorney-general-richard-powers-antitrust-division-delivers-remarks.