In USA v. Patel et al., US District Court Judge Victor A. Bolden granted the defendants’ motion for acquittal in a criminal prosecution alleging six current and former aerospace executives were involved in an illegal conspiracy.
The companies allegedly engaged in a multi-year agreement to suppress competition by agreeing to restrict the hiring and recruiting of engineers and other employees.
The indictment claimed the purpose of the conspiracy was to “prevent wages and labor costs from rising and otherwise financially benefit[ting] co-conspirators.” The US Department of Justice (DOJ) argued this “no-poach” agreement was a per se illegal labor market allocation in violation of 15 U.S.C. § 1, the Sherman Act, which precludes contracts in restraint of trade.
In 2016, the DOJ Antitrust Division issued guidance warning of potential criminal prosecutions for no-poach agreements, which the DOJ has consistently argued are per se illegal. In 2021, true to its promise, the DOJ brought charges against the defendants, arguing that their no-poach agreement was per se unlawful.
In December 2022, the court denied the defendants’ motion to dismiss accepting the facts as pled in the indictment. The court looked at the defendants’ no-poach agreement and rejected their argument that it fell outside the “limited categories of conduct” that justify per se treatment. Though the court concluded that not all no-poach agreements are per se illegal, it held the conduct at issue was “subject to per se treatment because it [was] properly pled as a market allocation,” sufficient to withstand a motion to dismiss. Prohibited “horizontal market allocations” are agreements between competitors at the same level of the market to minimize competition. Examples of prohibited market allocations include dividing geographic territory between competitors, dividing customers between competitors, or dividing an employment market.
The case proceeded to trial in April 2023. Before the jury deliberated, the defendants moved for judgment of acquittal under Rule 29 of the Federal Rules of Criminal Procedure. Judge Bolden granted the motion and found as a matter of law that the alleged agreement did not constitute a market allocation requiring per se treatment and ordered the defendants be acquitted.
The court relied on Bogan v. Hodgkins, 166 F.3d 509 (2d Cir. 1999), which declined to apply the per se rule to a hiring restriction limiting independent contractors from moving positions within a specific geographic region. The court, finding no “meaningful difference” between the instant action and Bogan, applied the Second Circuit’s reasoning — finding the restriction was not per se illegal because it allowed employees to transfer positions with permission from their employers and in other limited circumstances — to the instant case. The court determined evidence of emails between the parties suggesting blanket agreements to restrict hiring were insufficient to demonstrate a per se violation because the agreements allowed for exceptions permitting hiring and the evidence demonstrated such exceptions occurred on a more than incidental basis. Judge Bolden found that even with restrictions in place, because the alleged agreement had exceptions and the workers were able to switch between different companies, there was no actual illegal market allocation for labor. Accordingly, no reasonable juror could conclude there was a cessation of meaningful competition in the allocated marked.
The court’s order both provides guidance and reiterates the limitations on the application of the per se rule to no-poach agreements. ArentFox Schiff LLP will continue monitoring developments in this area.
[View source.]
