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DOJ Antitrust Division Continues Expansion of Amicus Program With Planned Statement of Interest in No-Poach Case

Posted  February 18, 2019
By Alex Cohen

The Antitrust Division of the U.S. Department of Justice (“DOJ”) has filed a notice of intent to file a statement of interest in Danielle Seaman et al. v. Duke University et al., No. 1:15-cv-00462 (M.D.N.C.), the class action that alleges Duke University and the University of North Carolina violated antitrust laws by conspiring to suppress the wages of faculty members through the use of “no-hire” or “no-poach” agreements.

The DOJ announced on February 6, 2019, that it would be filing a statement to address the proper standard of review regarding the alleged no-poach agreement and the proper treatment of the defendants’ state-action defense.  The DOJ’s announcement highlights two recent trends in antitrust law—(1) increased interest in no-poach agreements, and (2) the DOJ’s expansion of its amicus program.

Recent Developments in No-Poach Litigation

Over the last few years, no-poach agreements have caught the attention of federal and state antitrust enforcers, as well as private plaintiffs.  In October 2016, the DOJ and the U.S. Federal Trade Commission (“FTC”) jointly issued the Antitrust Guidance for Human Resource Professionals (the “Guidance”).  The Guidance was designed to inform human resource (HR) professionals and others who are involved in hiring and compensation decisions about potential violations of the antitrust laws.

Significantly, the Guidance warned that “[g]oing forward, the DOJ intends to proceed criminally against naked wage-fixing or no-poaching agreements.”  Wage-fixing agreements are agreements “about employee salary or other terms of compensation, either at a specific level or within a range.”  No-poach agreements are agreements in which the parties “refuse to solicit or hire that other company’s employees.”  Both types of agreements are considered per se illegal under the antitrust laws, unless the agreement is reasonably necessary to a larger legitimate collaboration between the employers.

In January 2018, Makan Delrahim, the U.S. Assistant Attorney General for the Antitrust Division, announced that the DOJ was working on several criminal enforcement actions against companies alleged to have no-poach agreements.  Shortly thereafter, in April 2018, the DOJ announced a civil settlement with Knorr-Bremse AG and Westinghouse Air Brake Technologies Corp. (Wabtec), two of the world’s largest rail equipment suppliers.  The DOJ’s complaint alleged that the companies had entered into no-poach agreements with each other for several years.  Although the DOJ pursed a civil settlement in this case, the agency indicated that it was not retreating from its pursuit of such agreements for criminal violations.  In that case, the DOJ treated the conduct as a civil violation because the defendants had terminated the agreements before the DOJ announced its intent to proceed criminally against such agreements.  The settlement draws a clear line between pre-October 2016 conduct and post-October 2016 conduct—which the Guidance noted would be subject to criminal prosecution.

In addition to the federal agencies, state attorneys general have announced investigations and settlements concerning no-poach agreements, particularly in the fast-food industry.  In July and August 2018, Washington Attorney General Bob Ferguson announced two settlements with over a dozen fast-food chains who agreed to stop using no-poach clauses that prevented employees from moving between franchise locations.  In addition, in July 2018, Massachusetts Attorney General Maura Healey announced that a coalition of 11 state attorneys general had sent letters to several fast-food franchisors about no-poach agreements in franchise contracts.

The private plaintiffs’ bar has similarly been active in no-poach litigation.  In January 2017, a class of animators reached a nine-figure settlement with a group of animation studios over allegations that defendants conspired to suppress wages by not actively soliciting each other’s employees.  In addition, numerous private class actions have been filed across the country over no-poach agreements in a variety of industries, including fast-food, tax preparation services, auto repair services, and healthcare.

Expansion of the DOJ’s Amicus Program

Recently, the DOJ announced that it would be expanding its amicus program to increase participation in private litigation.  In October 2018 Congressional testimony, Assistant Attorney General Delrahim stated that the expansion of the amicus program—which will include filings not only in the Supreme Court, but in district and appellate courts—is intended to “more proactively and more effectively promote the use of antitrust and competition principles across the judiciary.”  Delrahim noted that the DOJ filed over twice as many statements of interest in 2018 as it did in 2017.

Following the recent government shutdown, the DOJ announced a substantial increase in the number of statements of interest it intends to file.  On January 25, 2019, the department filed notices of intent to file statements of interest in three related fast-food franchise no-poach suits pending in Washington federal court.  In its letter, the DOJ provided additional information on how it approaches different types on no-poach agreements.  The DOJ stated that no-poach agreements between a franchisor and a franchisee should be evaluated under the rule of reason since they are likely to be considered vertical restraints, or horizontal constraints that are reasonably necessary to a separate, legitimate business transaction or collaboration between the companies.  The DOJ also stated that the rarely used “quick-look” analysis is unlikely to apply to vertical franchisor-franchisee agreements, and that the franchise model, absent other facts, cannot constitute a “hub and spoke” conspiracy that would trigger per se or quick-look review.

The DOJ also sought to file statement of interest in the private litigation over the Knorr-Bremse AG and Wabtec agreements, which previously resulted in a settlement with the DOJ based on a theory of per se illegality.  The DOJ said that they were filing the statement of interest to address defendants’ argument that all no-poach agreements should be evaluated under the rule of reason.  The DOJ said that no-poach agreements among competitors “are per se unlawful unless the facts show that they are reasonably necessary to a separate legitimate business transaction or collaboration between employers.”

In addition, the DOJ recently filed notices to file a statement of interest in a patent suit involving allegations that technology company violated antitrust laws by seeking excessive royalties for standard-essential patents, and in the current Duke University case.  In Duke University, the DOJ did not indicate in its notice of intent what position the agency would ultimately take, stating only that it seeks to address “the proper standard of review of the alleged no-poach agreement under Section 1 of the Sherman Act.”

Conclusion

Given the increased regulatory attention to no-poach agreements, companies and their HR professionals should expect continued scrutiny of such agreements, including other types of conduct that suppress employees’ wages or mobility, from both federal and state antitrust enforcers, as well as private parties.  While the DOJ’s recent statements of interest offer valuable insight into the circumstances under which the agency will pursue no-poach agreements under the rule of reason, the DOJ’s statements are not binding on the courts and it remains to be seen what standard of review will be applied by the courts.  Finally, the DOJ’s increased advocacy is a welcome development that will undoubtably continue to provide valuable guidance to in-house counsel and practitioners on a variety of developing trends in antitrust cases.

Edited by Gary J. Malone

 

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