🔒‘No poach’ indictment serves as reminder for competitors

For the first time, the Justice Department has filed criminal charges related to “no poach” agreements.

These agreements, made between two or more competitors to neither recruit or hire others’ employees, may well be a violation of antitrust laws.

If this sounds like these agreements would be an issue for big tech companies, you’re not wrong. “No poach” agreements (also known as “employee allocation” or “non-solicitation” agreements) were in the news in 2015 regarding a class action lawsuit against a group of tech giants including Apple, Google and Intel. The suit claimed that “no poach” agreements were used to suppress employee pay and was reportedly settled for $435 million in 2015.

The latest indictment, filed in January in the United States District Court for the Northern District of Texas, Dallas Division, alleges that Surgical Care Affiliates LLC (SCA) and related companies engaged in “no poach” agreements to stifle competition for senior-level healthcare personnel.

The case, which alleges wrongdoing by both companies and individuals, provides an example that C-suite and HR executives alike would be wise to note.

What not to do

The Justice Department indictment cites many emails sent and received by SCA executives and employees over a seven-year period.

“I had a conversation with [Individual 1] re: people and we reached agreement that we would not approach each other’s proactively,” reads one email. A recruiter is quoted as writing, “Please do not schedule a call with [candidate] … . We cannot reach out to SCA folks. Take any SCA folks off the list.”

A company identified in the indictment as “Company A” referred to a “verbal agreement with SCA not to poach their folks … .” An HR employee from Company A also remarked that although a specific candidate “look[ed] great” she “can’t poach her.”

The indictment essentially provides a script for the types of behavior that could expose a company and its leaders to criminal prosecutions, fines and jail time.

Different from noncompete agreements

With certain exceptions and limitations, noncompete agreements are enforceable in Connecticut. However, “no poach” agreements are different from noncompete agreements.

The latter bars an employee from joining a competitor or going into business for themself with a clearly defined timeframe, geography and industry. Noncompetes are “bottom up” with employees often entering into them willingly when they take a job.

“No poach” agreements are “top down,” so to speak. Competitors agree not to so much as interview one another’s employees, meaning employees have no ability to move within the market. Individuals are also able to challenge noncompetes in court if they feel the clause is being applied unfairly.

A proactive approach to compliance

While it would seem like not entering into “no poach” agreements would be simple enough, it’s often not so cut and dried. While SCA openly used the word “poach” in their communications, your executives and HR team may not necessarily recognize when they are at risk for antitrust violations.

The best solution for individuals, companies, whether large or small, for-profit and nonprofit organizations, is a proactive compliance program.

In a 2020 update to its guidance, the Justice Department plainly states that “the adequacy and effectiveness of the corporation’s compliance program at the time of the offense, as well as at the time of the charging decision,” will be a factor regarding potential criminal charges.

In addition, compliance programs help organizations avoid other antitrust pitfalls such as price fixing, bid rigging and market allocation. This is certainly one case where, as they say, an ounce of prevention is worth a pound of cure.

James T. Shearin is a litigation attorney and chairman of law firm Pullman & Comley. Michael Kurs is an attorney in the healthcare and professional liability practices at Pullman & Comley.