Contact

Click here for a confidential contact or call:

1-212-350-2764

DOJ Clarifies How it Analyzes No-Poach Agreements

Posted  March 15, 2019
By Grant Petrosyan

Deputy Assistant Attorney General Michael Murray provided some guidance with his recent remarks at the Santa Clara University School of Law regarding the U.S. Department of Justice’s (“DOJ”) antitrust initiatives with respect to the labor sector.  As Murray discussed, the DOJ has demonstrated an increased interest in prosecuting no-poach agreements in recent years and continues to provide guidance on the topic.

DOJ’S AMICUS PROGRAM IS A TOP PRIORITY

Murray highlighted that the DOJ has made its amicus program a top priority.  As Assistant Attorney General Makan Delrahim told Congress, the Division is trying to expand its amicus program to “more proactively and more effectively promote the use of antitrust and competition principles across the judiciary.”  Accordingly, the DOJ filed nine briefs in 2018 compared with only one in 2017.  The DOJ expects to file approximately 20 briefs this year.  Murray reminded the audience that filing amicus briefs has been a legal obligation for the Antitrust Division for decades.  In 1975, Attorney General Edward  Levi codified a delegation of authority to the Assistant Attorney General of the Antitrust Division, which provides that the Division’s responsibilities include the enforcement of the federal antitrust laws, including as amicus curiae in private antitrust litigation.

With respect to choosing the cases in which to file amicus briefs, Murray stated that the program is discretionary and added, “it is increasingly common for parties and organizations to come to us with a pitch about a case that they believe raises significant issues.” He explained that this is similar to the amicus program of the Solicitor General, in which parties typically advocate in person and in writing that the Solicitor General file an amicus brief on their side.  Murray stated that the Antitrust Division has adopted this process as part of its amicus program.

RECENT DOJ FILINGS REGARDING THE PROPER STANDARD OF REVIEW

Murray discussed the Antitrust Division’s filings concerning the proper standard for assessing market allocations in labor markets.  In its first brief, the Antitrust Division argued that no-poach agreements among competitors are “per se unlawful unless they are ancillary to a separate, legitimate transaction or collaboration.”  In its second filing, the Division took the position that no-poach agreements in the franchise context are likely subject to the rule of reason.  Murray highlighted that there was criticism from defense-friendly and plaintiff-friendly attorneys in both cases.

Murray stated that the Division’s position in the labor antitrust space is “best understood through the lens of the rule of law and as informed by history and doctrine.”  He provided some background on antitrust in the labor markets, citing Senator Sherman’s position on the power of monopolies to “command the price of labor” as well as employers’ attempts to fight against unions before the passage of the Clayton Act.

The DOJ and the Federal Trade Commission (“FTC”) issued their Antitrust Guidance for Human Resources Professionals in October 2016.  The Guidelines faced criticism for being unclear.  Thus, the Division has taken several steps to provide further clarity. For instance, in 2018, Principal Deputy Andrew Finch announced that the Division will pursue criminal charges for unlawful no-poach agreements that began, or continued, after the Guidelines were announced.

The DOJ’s position is that naked no-poach agreements among competitors are per se violations of the antitrust laws.  No-poach agreements are naked if they are not reasonably necessary to any separate, legitimate business collaboration between the employers.  However, no-poach agreements that are not naked or are not among competitors are subject to the rule of reason.

The first question is whether the entities are capable of the “concerted action” required by Section 1 of the Sherman Act.  Separate, unrelated corporations competing in the market are clearly “independent centers of decision-making.”  However, in some situations, it can be more complicated and is based on what the Supreme Court called a “functional consideration of how the parties involved in the alleged anticompetitive conduct actually operate.”  Thus, whether separate companies are capable of concerted action is a complex, factual question.

The next question is whether to apply the per se rule or the rule or reason.  In deciding which standard to apply, it must be determined whether the entities are competitors in the labor market.  In other words, is there a horizontal relationship among them with respect to the alleged no-poach agreement?  If there is such a relationship, the no-poach agreement is per se unlawful, unless the ancillary restraints doctrine applies.  Murray stated, “even a horizontal restraint is not subject to the per se rule if it is subordinate and collateral to a separate, legitimate transaction, and reasonably necessary to make the main transaction more effective in accomplishing its purpose.”  This determination is also fact-specific.

CONCLUSION

No-poach agreements are subject to the per se rule unless they are not naked or not among competitors, or the restraint is subordinate and collateral to a separate, legitimate transaction and reasonably necessary to make the main transaction more effective in accomplishing its purpose.  In such cases, the rule of reason analysis should be applied.

The final question is whether the full rule of reason or the quick look doctrine should be applied.  The quick look doctrine is appropriate only when “an observer with even a rudimentary understanding of economics could conclude that the arrangement in question would have an anticompetitive effect.”  However, the quick look doctrine should not be considered a separate standard of review that is in addition to the rule or reason and the per se rule.

Edited by Gary J. Malone

 

Newsletter

Subscribe to receive email updates from the Constantine Cannon blogs

Sign up for: