Federal Court Dismisses DOJ Antitrust Case Targeting No-Poach Agreements

A federal district court in Connecticut dismissed U.S. v. Patel, a U.S. Department of Justice (DOJ)’s antitrust case involving a jet-engine manufacturer with no-poach agreements concerning recruiting and hiring aerospace engineers with several firms that competed for its projects. Employers and HR professionals are hailing the decision as reassurance that the federal government will not apply so broadly the antitrust laws that it criminalizes traditional, everyday business and hiring practices.

In Patel, the DOJ brought criminal charges against six Connecticut HR executives for allegedly conspiring to uphold illegal no-poach agreements violating the Sherman Act. The federal law prohibits agreements that unduly constrain trade or commerce, in that groups of businesses may not agree to suppress wages or not compete for certain employees, even to reduce labor costs. In this case, the DOJ claimed that a manager threatened to punish companies that recruited another company’s employees by taking away their access to projects.

No-poach agreements are permissible when the so-called “rule of reason” applies. For instance, mergers, acquisitions, and collaborative projects involving multiple staffing firms may justify using no-poach agreements under the rule of reason. However, the DOJ argued that the rule of reason was inapplicable because the no-poach agreement was a horizontal market allocation. In other words, competitors at the same market level used the no-poach agreement to structure the labor market to minimize competition. The defendants disagreed, claiming the agreement was a vertical rather than a horizontal relationship between the manufacturer and outsourced providers.

The court found that the no-poach agreement was legally permissible because hiring restrictions within it frequently changed, and numerous exceptions existed. As such, the agreement did not inhibit meaningful competition.

The DOJ has brought several similar antitrust cases alleging illegal no-poach activity. These cases have resulted in a few high-profile losses for the DOJ, suggesting that judges and juries are not making the connection between antitrust violations and these business practices. Nonetheless, HR professionals must remain aware of changes in federal law, as federal agency enforcement actions are likely to continue in the future.

HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.

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