Last year, I wrote about the Department of Justice, Antitrust Division’s new generation of criminal prosecutions tackling what it called “naked wage-fixing” and “no-poaching agreements.”

The Department took the position that wage-fixing – agreements among firms to fix salaries at a certain level or within a certain range – was tantamount to price fixing and that no-poach agreements – agreements among firms not to solicit each other’s employees – were just another form of wage-fixing. Two of those cases have now cleared their first hurdle, surviving defendants’ motions to dismiss the indictments.

To be sure, for the defendants, losing a motion to dismiss is not the same as being convicted by a jury; for the government, fending off a preliminary challenge simply means they have adequately pled their case, not that they have secured a conviction by proving a crime beyond a reasonable doubt. In reviewing a motion to dismiss an indictment, a court must accept all of its factual allegations as true, and then determine whether the indictment actually charges a crime so that the case can move forward to trial. Still, even though the two recent rulings occurred at early stages of the cases, they represent ringing endorsements of the government’s position that no-poach agreements can in some instances be criminally prosecuted.

First out of the box was United States v. Jindal, 2021 WL 5578687 (E.D. Tex. Nov. 29, 2021). The indictment alleged that defendant Rodgers, acting on behalf of Jindal and  Company A, texted with the owner of a competing staffing company, Individual 2, regarding the rates that Company A and Individual 2’s staffing company paid their physical therapists (PTs) and physical therapist assistants (PTAs). Rodgers asked, “[h]ave you considered lowering PTA reimbursement” and stated, “I think we’re going to lower PTA rates to $45” Individual 2 responded, “[y]es I agree” and “I’ll do it with you.” Rodgers responded with a “thumbs up” emoji and texted, “I feel like if we’re all on the same page, there won’t be a bunch of flip flopping and industry may stay stable.”

For his part, after hearing back from Rodgers, Jindal texted the owners of other therapist staffing companies to recruit additional competitors to join the conspiracy to collectively lower rates, saying “I am reaching out to my counterparts about lowering PTA rates to $45. What are your thoughts if we all collectively do it together?” Jindal further texted each owner that he had Individual 2’s company “on board.” Later, Rodgers told Individual 2: “FYI we made rate changes effective next payroll Monday decreasing PT’s and PTA’s,” and Individual 2 responded: “Well I can join in where did u go.” They exchanged text messages regarding their companies’ pay rates for PTs  and PTAs, leading to Company A paying lower rates to certain PTs and PTAs.

In the second case, United States v. Davita Inc., 2022 WL 266759 (D. Colo. Jan. 28, 2022), the court quoted less of the colorful language from the indictment. As noted in my previous article, the grand jury indicted DaVita Inc. and its chief executive officer, Kent Thiry, for similar offenses related to two conspiratorial agreements, one with SCA (a unit of UnitedHealth Group), the other with an unnamed healthcare company.

The alleged conspiracy with SCA included an email in which an employee of SCA wrote that “I thought there was a gentlemen’s agreement between us and DaVita re: poaching talent.” An executive for SCA replied: “There is. Do you mind if I share with [Individual 1], who has most recently addressed with Kent [Thiry].” Individual 1 relayed the instance of recruitment to Thiry, who replied “Will check it out.” Thiry forwarded the communication to a co conspirator with the comment: “Pls put in our next agenda.” In the second DaVita conspiracy, a co‑conspirator emailed Thiry that “You also have my commitment we discussed that I’m going to make sure everyone on my team knows to steer clear of anyone at DVA and that I’ll come back to you and talk before ever get anywhere near a point that could contemplate someone else.”

In both cases, the defendants challenged whether the charged conspiracies actually charged per se violations of the Sherman Act that can be prosecuted criminally. For more than a century, the Supreme Court has held that price-fixing agreements are unlawful per se and are not subject to the usual “rule of reason” analysis that applies in civil antitrust cases. United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940).

In Jindal, the Texas federal court noted that price-fixing agreements can involve buyers as well as sellers and extend to labor markets. In its view, an agreement to suppress pay rates to PTs and PTAs “describes a price-fixing conspiracy that is per se unlawful.” The court gave short shrift to defendants’ argument that “pay rates” for PTs and PTAs were somehow different from “prices” or “wages” as described in other criminal antitrust cases. The court also rejected a variety of other challenges based on the rule of lenity and the supposed failure of the indictment to give fair warning.

In DaVita, the federal court in Colorado devoted much of its time to untangling the analytical steps required to determine whether per se treatment for charged conduct is appropriate. The fact that the cases were novel did not trouble the court. “But that is the nature of Section 1 of the Sherman Act:  as violators use new methods to suppress competition by allocating the market or fixing prices these new methods will have to be prosecuted for a first time.” The court cautioned that not every non-solicitation or no-hire agreement would necessarily allocate the market and be subject to per se treatment, but rejected the defense argument that such agreement can never be per se antitrust violations. Instead, the court concluded that “if naked non-solicitation agreements or no-hire agreements allocate the market, they are per se unreasonable” – and found that the DaVita indictment satisfied that standard.

To briefly repeat the parade of horrible that faces a company charged with criminal antitrust violation: fine of to $100 million (or twice the gain or loss related to the conspiracy), class action civil suits, and suspension or debarment from competing for government contracts. For individuals, there is a potential sentence of up to 10 years in prison, as well as fines, restitution, forfeiture, and post-incarceration supervised release.

In an era of rising labor costs and other inflationary inputs, businesses understandably want to keep labor costs under control, especially in service industries with tight labor markets. Unilateral steps to accomplish those goals are perfectly lawful. But, emboldened by these courtroom victories, the government is going to investigate and prosecute as many no-poach agreements as it can. When it comes to labor as well as goods, buyer beware.

Stuart Berman served for 28 years with the Department of Justice as a line and supervisory Assistant United States Attorney and as a trial attorney with the Antitrust Division. He has represented corporate and individual defendants in criminal antitrust cases. He can be reached at 301-657-0729 or [email protected].