Criminal enforcement of labour market antitrust violations: assessing the DOJ’s record

August 2022  |  SPECIAL REPORT: COMPETITION & ANTITRUST

Financier Worldwide Magazine

August 2022 Issue

In 2016, the US Department of Justice (DOJ) and the Federal Trade Commission (FTC) signalled a new approach to antitrust enforcement in labour markets when they jointly released the Antitrust Guidance for Human Resource Professionals. The Guidance broadly warned human resource (HR) professionals that agreements between firms competing for labour to fix employee wages or refrain from soliciting each other’s employees, so-called ‘no-poach’ agreements, could result in criminal prosecution. The Guidance represented a meaningful shift in the agencies’ enforcement policy in labour markets, as the DOJ had previously challenged such agreements only in civil litigation. The Guidance advised that the agencies would treat ‘naked’ agreements that are not reasonably necessary for a legitimate collaboration between the employers, as per se violations of section 1 of the Sherman Act, and prosecute such agreements criminally against both offending companies and the individuals involved. The Guidance explained that companies are horizontal competitors when they compete to hire employees, and therefore wage fixing and no-poach agreements “eliminate competition in the same irredeemable way as agreements to fix product prices or allocate customers”. At the same time, the Guidance acknowledged that no-poach agreements that are ancillary to legitimate joint ventures likely would not be considered illegal because they could have procompetitive effects.

In the years since, DOJ officials have stated that the DOJ is actively investigating many potential violations, but the DOJ’s public activities primarily consisted of civil enforcement actions involving wage fixing and no-poach agreements and interventions in private civil actions to clarify how no-poach agreements should be evaluated under the antitrust laws.

Since late 2020, however, the DOJ has obtained grand jury indictments in a series of no-poach and wage fixing cases around the country, and this past April the first two cases went to trial. In US v. Jindal, the DOJ charged Neeraj Jindal, the former owner of a physical therapist staffing company, and John Rodgers, the staffing company’s former clinical director, with violations of section 1, alleging that Mr Jindal and Mr Rodgers conspired with competitors to fix the wages of physical therapists in the Dallas area. Mr Jindal was also charged with obstruction of justice in connection with a civil FTC investigation that first uncovered the conduct. That investigation resulted in a settlement of claims that Mr Jindal and Sheri Yarbray, owner of a competing firm, agreed on rates to be paid to therapists and invited other competing firms to agree to do the same. In US v. DaVita, the DOJ charged DaVita, a healthcare company that provides dialysis services, and its former chief executive, Kent Thiry, with section 1 violations for entering into separate agreements with three competitors not to solicit each other’s senior-level employees.

Prior to the trials, the DOJ secured significant victories when the courts in both cases denied the defendants’ motions to dismiss. The DaVita ruling was the first time a court found that a no-poach agreement should be treated as illegal and could be prosecuted criminally. The Jindal ruling was the first time a court found that wage fixing could be prosecuted criminally.

Despite this tailwind heading into the trials, on consecutive days in April juries acquitted all defendants in both cases on the antitrust counts, although the jury in Jindal did convict Mr Jindal of obstruction of justice in the FTC investigation. The acquittals resulted even though alleged co-conspirators testified the agreements existed, recruiters and employees testified about the effects the alleged agreements had on labour, the individual defendants did not testify on their own behalf, and the DOJ offered significant email and texts between competitors.

Several factors may have affected the jurors’ decision making. First, in both trials, the government relied heavily on testimony of alleged co-conspirators who cooperated with the DOJ and testified under grants of immunity from prosecution. In both cases the court instructed jurors to consider the testimony with greater care and caution than that of ordinary witnesses, because receipt of immunity could have affected the testimony. In DaVita, a key DOJ witness who testified under prosecutorial immunity was portrayed by defence counsel as a disgruntled former employee of the company who wanted payback. In Jindal, defence counsel elicited on cross-examination that Ms Yarbray, the DOJ’s star witness who testified she had an agreement to fix wages with Mr Jindal and Mr Rodgers, had said something different to the FTC during its earlier investigation. In statements to the FTC, Ms Yarbray apparently said that she and Mr Rodgers agreed to lower pay rates, but that she merely pretended to go along with the agreement.

Second, in both cases the DOJ relied on federal agents to summarise the evidence. Using a summary witness to organise documents into timelines and describe voluminous emails and texts is especially important to the government when defendants exercise their right not to testify, which happened in both Jindal and DaVita. But the jury instructions in both cases were clear that jurors need not rely on the testimony and could totally disregard it if they chose.

Third, in both cases the defence offered evidence of a lack of an effect from the conduct. In Jindal, the evidence showed at most an agreement between two competing firms in a marketplace with five or more additional competitors. And counsel impeached the testimony of the competitor who allegedly did agree to fix rates. In DaVita, the defence offered evidence that, despite the alleged agreements not to solicit, employees did move between firms. The evidence included expert analysis of DaVita turnover rates. Moreover, the jury heard that employees had many options for employment, not just the few firms involved in the conduct.

These three challenges will no doubt present themselves again in future cases. The Antitrust Division’s success in prosecuting price fixing is owed to the leniency policy that grants immunity to a firm and all of its employees who blow the whistle on co-conspirators. Rather than go forward with a one-witness trial, the DOJ will likely immunise other witnesses from additional co-conspirator firms so that they will agree to testify. The DOJ is also likely to have to rely on federal agents to provide summary testimony in future cases. Particularly in cases with more than a few alleged co-conspirators, the volume of emails and texts tends to be significant. The DOJ needs a witness to sort through the evidence and present it coherently, especially if individual defendants exercise their right not to incriminate themselves. Finally, juries are likely to be sceptical when evidence shows that only two of at least seven competing firms agreed to lower wages – one of the objectives of a wage fixing scheme is to stabilise rates in the market so employees do not jump ship to another firm. If only two firms out of many agree, and then drop their rates below the rest of the market, they are sure to lose employees. In no-poach cases, juries may not relish convicting individuals when the evidence shows employees moved between firms despite agreements not to solicit, especially if employees have many options for employment besides the conspiring firms.

Additional wage fixing and no-poach indictments are set to be tried or are in pre-trial proceedings. There is a trial set for this summer involving one of the other companies that participated in the agreements at issue in DaVita – US v. Surgical Care Affiliates. There is a trial set for 2023 in a case involving an alleged conspiracy to fix the wages of Las Vegas area school nurses – US v. Hee. And there are two other prosecutions still in the early pre-trial phase: US v. Patel and US v. Manahe. Despite losing the first two cases, the DOJ is likely to move full steam ahead with criminal enforcement in labour markets. Prior to the April acquittals, the DOJ’s coordination of enforcement efforts also expanded when, in March, the DOJ signed a memorandum of understanding (MOU) with the Department of Labour (DOL) to, among other things, share information and “establish procedures for consulting and coordinating various stages of their respective investigative and enforcement activities with respect to potential violations of antitrust or labor, employment, and workplace safety laws”. The DOL also agreed that, if it detects potential antitrust violations during an investigation, it would evaluate and, when appropriate, refer the matter to the DOJ for further investigation. The MOU followed a new policy statement adopted by the FTC in late 2021, which outlined the Commission’s plans to expand its criminal referral programme in an effort to prevent and deter corporate crime stemming from consumer protection and criminal antitrust misconduct.

The challenges presented in the recent defeats are not confined to labour-related antitrust cases. Earlier this spring, the DOJ’s long-running investigation into price-fixing in the chicken industry culminated in a second consecutive mistrial, even though the investigation had previously secured guilty pleas and nine-figure penalties from some participants. But, just as the DOJ decided to try the chicken case for a third time, so too will it likely continue to pursue criminal antitrust enforcement in labour markets, and do so aggressively.

 

Tara L. Reinhart is a partner and Zachary C. Siegler and Tamara L. Chin Loy are associates at Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates. Ms Reinhart can be contacted on +1 (202) 371 7630 or by email: tara.reinhart@skadden.com. Mr Siegler can be contacted on +1 (212) 735 3547 or by email: zachary.siegler@skadden.com. Ms Chin Loy can be contacted on +1 (202) 371 7023 or by email: tamara.chinloy@skadden.com.

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BY

Tara L. Reinhart, Zachary C. Siegler and Tamara L. Chin Loy

Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates

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