Department of Justice suggests that employee non-competes could be criminally prosecuted

Background

As explained in prior Hogan Lovells alerts, DOJ has in recent years expanded its scrutiny of agreements that restrict the solicitation, wages, or movement of employees.¹ This expansion has included an increase in criminal investigations and prosecutions of no-poach agreements, wage-fixing, and other “naked conspiracies in labor markets”² that DOJ argues should be treated as per se violations of the antitrust laws.  Federal courts in Texas³ and Colorado⁴ have recently lent support to this argument by holding that wage-fixing and no-poach agreements are among the types of agreements that are per se unlawful and can be prosecuted criminally. 

DOJ’s Statement of Interest

DOJ’s statement of interest in the Pickert case expands the potential universe of per se antitrust violations that DOJ may target to promote worker mobility.  Plaintiffs in this case provide anesthesiology services to Renown Regional Medical Center pursuant to an exclusive Professional Services Agreement (PSA) between Pickert and Renown.  The PSA allegedly contains a provision prohibiting plaintiffs from providing anesthesiology services for two years at any facility within 25 miles of Renown’s facilities or any other facility where the anesthesiologist worked before terminating of their employment (the non-compete provision).  In October 2021, Renown notified Pickert that it intended  to terminate the PSA, and plaintiffs then sued in Nevada State court to try to stop Pickert from enforcing the non-compete provision in the PSA.  Plaintiffs allege that the PSA violates a Nevada state law limiting noncompetition covenants.⁵

DOJ’s statement of interest does not take a position on the merits of the case, but instead is intended to demonstrate how “principles of federal antitrust law may be useful to the Court’s assessment of [the Nevada state law] claims.”  DOJ argues that the non-compete provision may violate federal law under either a per se analysis, traditionally only applied to “naked” agreements between competitors, or the rule-of-reason standard applied to other competitive restrictions.

Per se analysis

DOJ first argues that the non-compete provision qualifies as a horizontal restraint between competitors because the individual board-certified and licensed anesthesiologists were “actual or potential competitors of Pickert when they agreed to the non-competes.”  Viewed in that light, per DOJ, the non-compete provisions “could be characterized” as agreements “to allocate to Pickert the area within 25 miles of Renown or at any other facility where the anesthesiologists employed by Pickert worked.  Thus, they would constitute horizontal agreements to allocate territories subject to the per se rule unless the ancillary-restraints defense applies.”⁶

Rule-of-reason analysis

Even if Pickert proffers a successful ancillary-restraints defense, DOJ argues that a court could still find that the restraints are unreasonable, and illegal, under a rule-of-reason analysis.  To support this assertion, DOJ contends that (1) plaintiffs’ allegations suggest that non-compete agreements restrain a significant portion of the market for anesthesiology services⁷ (2) defendants’ procompetitive rationale for the non-compete provision—characterized by DOJ as “protect[ing] Employer’s interest in its investment from competition” is insufficient; and (3) any purported procompetitive efficiencies can be achieved through less restrictive means, such as the non-interference and non-solicitation clauses that already exist in the PSA.

Implications

DOJ’s statement of interest in this case—its first statement filed in 2022—is the latest signal that the agency intends to significantly increase its antitrust enforcement efforts in U.S. labor markets.  While DOJ does not make reference to criminal liability or prosecutions in its statement of interest, DOJ’s position that non-compete agreements can be per se unlawful could be a first-step towards criminal scrutiny of non-competes, which would be a significant expansion of criminal liability to a common business arrangement.  Although DOJ has never brought a criminal case targeting an employee non-compete agreement, it has incorporated restrictions on the use of such agreements in a remedy resolving a market allocation conspiracy case – a resolution touted by Deputy Assistant Attorney General Richard A. Powers in an October 2021 speech.⁸ With its statement of interest in the Pickert case, it seems poised to take the next step towards directly targeting non-compete agreements as per se violations of the antitrust laws.     

Watch this space

The Hogan Lovells Antitrust and Competition team is following these and other related developments closely, and will present a webinar on 16 March 2022 to discuss the rapidly changing landscape for antitrust enforcement in labor markets, both in the U.S. and internationally.  Please click here to register for the webinar.