Recent No-Poach Case Provides Guidance for Labor-Market Antitrust Matters

In United States v. Patel – a labor-side criminal antitrust case brought in federal district court in Connecticut[1] – six individuals were recently acquitted of charges of having entered into an illegal conspiracy to restrict hiring and recruiting in the aerospace industry.  The decision highlights difficulties in the criminal prosecution of so-called “no-poach” agreements, but also serves as a reminder of the need for extreme employer caution in connection with such issues.

The Patel Acquittal

In Patel, the Department of Justice claimed that a former manager from aerospace engineering company Pratt & Whitney and five executives from the company’s outsourcing suppliers entered into a per se illegal conspiracy under Section 1 of the Sherman Act.[2]  According to the Government, the six defendants, who would have normally competed among themselves for engineering talent, established an unwritten no-poach agreement to refrain from hiring or recruiting engineers and other skilled workers from certain companies, and from recruiting applicants employed by another alleged co-conspirator company.

Under the per se rule, certain practices are deemed irrebuttably unlawful by virtue of their very nature, including based on their presumed substantial potential for pernicious anticompetitive effects.  Moving for a judgment of acquittal, the Patel defendants argued that the alleged no-poach agreement did not warrant per se treatment.  In response, the Government contended that a no-poach agreement pled as a conspiracy to “suppress competition by allocating employees in the aerospace industry” is properly subject to the per se rule.

The court granted the acquittal motion, relying heavily upon the Second Circuit case Bogan v. Hodgkins.[3]  That case found that not all no-poach agreements operate as “market allocation” agreements.  Although the Bogan court determined that the alleged agreement at issue there, involving hiring restrictions on insurance agents, may have constrained the relevant labor market to some degree, it held that the agreement was not per se unlawful because “it does not allocate the market for agents to any meaningful extent.”  The Patel court likewise found that the alleged no-poach agreement concerning aerospace engineers was not per se unlawful, since it did not “meaningfully allocate the labor market of engineers from the supplier companies working on” Pratt & Whitney projects.

According to the Patel court, the agreement allowed for so many significant “exceptions” that it could not be said to meaningfully allocate the market.  The court noted, e.g., that the Pratt & Whitney manager (and alleged enforcer of the agreement) could and successfully did request permission to hire from one of the companies on a case-by-case basis; that the alleged restrictions and no-hire instructions constantly shifted in and out of place, sometimes on broad scales and throughout the course of the alleged conspiracy; and that, even though some emails occasionally suggested a blanket agreement not to hire, the actual hiring of employees and switching of employers among the relevant companies were far from exceptional, indeed commonplace in certain situations.

Under these facts, the Patel court reasoned that any market allocation was not legally meaningful.  The court accordingly held that no reasonable juror could conclude that there was an agreement for the “cessation of meaningful competition,” and that, “[a]s a matter of law, this case does not involve a market allocation under the per se rule.”

A Brief History of Criminal Enforcement

Traditionally, the DOJ had fought against no-poach agreements that it believes violate federal antitrust laws exclusively on the civil front.

In 2016, however, the Antitrust Division released guidance for HR professionals warning that it would begin investigating and criminally prosecuting no-poach agreements.

Even prior to Patel, the DOJ had faced substantial setbacks in the criminal enforcement of no-poach cases.  Research indicates that although the DOJ has obtained a guilty plea against a manager in one no-poach case, no jail time was imposed in that case, and there have been no federal jury convictions on allegations of conspiracy to restrict recruitment or hiring.

Still, the DOJ has indicated that it will continue to pursue criminal charges in no-poach matters.  Indeed, in March 2023, the Assistant Attorney General for the Antitrust Division stated that no-poach cases are “righteous cases” and that the Division would continue to bring them when supported by the facts and the law.

Final Considerations

The Patel case confirms that whether a no-poach agreement qualifies as a per se unlawful restraint is a highly fact-specific determination.  It also shows that the Government must satisfy a high burden to establish a market-allocation theory in such cases; even when a no-poach agreement exists, the persistence of meaningful competition and the presence of exceptions in practice can defeat per se charges.

All that said, however, no-poach agreements are generally deemed anticompetitive and illegal.  Companies, executives, and HR professionals should carefully avoid them.  And although limited exceptions may exist, including in certain joint-venture scenarios, companies should consult with counsel before considering any kind of deal or arrangement with competitors that potentially restricts employee recruitment or hiring.  The civil and criminal consequences of falling on the wrong side of antitrust law can be severe.

To strengthen compliance, companies should adopt, enhance, and enforce policies explicitly prohibiting (absent authorization from counsel) any arrangements with competitors that restrict pursuing, recruiting, or hiring employees.  Companies should also train executives, HR staff, and other relevant personnel to report any such issues, and educate them to be aware of the serious risks involved.

[1] United States v. Patel, No. 3:21-CR-220 (VAB), 2023 WL 3143911 (D. Conn. Apr. 28, 2023).

[2] 15 U.S.C. § 1 (prohibiting “every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States”).

[3] Bogan v. Hodgkins, 166 F.3d 509 (2d Cir. 1999).

This article is intended as a general discussion of these issues only and is not to be considered legal advice or relied upon. For more information, please contact RPJ Attorney Gregory Feit who counsels clients on employment law, litigation, arbitration, negotiation, and trial advocacy. Mr. Feit served is admitted to practice in New York.