AHLA's Speaking of Health Law
AHLA's Speaking of Health Law
Noncompete and No Poach Agreements in the Health Care Industry
Ann O’Brien, Partner, Baker & Hostetler LLP, and Eric Grannon, Partner, White & Case LLP, discuss the intersection of antitrust, labor, and health care; recent trends; and criminal antitrust no poach and wage fixing cases. They also discuss the recent historical focus on labor and competition, current trends at the FTC and across the Biden Administration related to the intersection of competition and non-compete/labor markets, and tips for health care companies in this era of heightened enforcement.
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Speaker 2:Hello, welcome to the a H L a podcast today. We're going to focus on the intersection of antitrust, labor and healthcare and discuss recent trends and criminal antitrust, no poach and wage fixing cases. And talk about some takeaways. I'm Anne. O'Brien a partner in the Washington office of baker. Hostler focusing on antitrust cartel and white collar work today. I'll be joined by Eric Gran. Eric, do you wanna introduce yourself?
Speaker 3:Sure. Uh, thanks Anne. Uh, my name is Eric Gran. I'm a partner in the Washington office of white and case where I've specialized for, uh, my entire career, really antitrust star. Uh, when I was summer associated in 1997. Um, earlier in my career, I did leave the firm for a couple of years to do a stint at the, uh, DOJ antitrust division, where I served as a council to the, uh, the head of the antitrust division and had the pleasure of overlapping with, uh, and there
Speaker 2:That's right. We were able to work to get, I was at DOJ antitrust for about 20 years and we had some overlap. So it's nice to be together again, talk about this exciting topic. Um, and I'll just kick off today by talking about the recent focus on labor and competition. I think before I do so, given that my firm and I do work in these matters, you just wanna give a, a brief disclaimer that my views are my own and don't represent, uh, my particular clients or firm because I, we are very busy in this area right now. And this focus on labor and competition really goes back quite a ways. Um, goes back in fact, to the Obama administration, when now president Biden was the vice president and he had a real focus on labor back in 2016, he played a significant role in the Obama administration's effort to promote labor market competition. And we saw at that timeframe in October, 2016, that's when the FTC and D OJ issued public in antitrust guidance for HR professionals. That guidance, what it did was it laid out competition issues relating to hiring and HR. And it went through some specific examples. It was really intended for HR professionals, but as with a lot of things, lawyers got much more interested in it because it was a pronouncement by the antitrust competition agencies. So part the part of that guidance that received the most attention was the part, uh, in which DOJ announced that going forward, the DOJ intends to proceed criminally against naked. And we'll talk about what that means, wage fixing or no poaching agreements. And they said that these types of agreements eliminate competition in the same irredeemable way as agreements to fix product prices or allocate customers, which have been traditionally criminally investigated and prosecuted as hardcore cartel conduct. So DOJ, what they did there was announce that it would criminally prosecute what they called naked wage fixing and no poach agreements that continue they later said in speeches after 2016. So the guidance was in way a no provision. Then we had a leadership change in the federal government and at the depart department of justice, but in the next administration, um, AAG Delhi then really doubled down on that guidance. And, and he said criminal cases were imminent. And then lawyers, we watched, we waited those of us in the, in the antitrust world. And, um, in 20, in late 2020, the antitrust division, this is still at the end of the last, the Trump administration did bring its first criminal wage fixing case. That was the gen doll case. And in early 2021, the antitrust division brought its first of three criminal, no poach cases in rapid succession. And now important for today's discussion is that all three of those were in the healthcare industry. The first no poach indictment was just over a year ago in January, 2021 in Texas charging the corporate owner of outpatient medical care centers across the country. Um, and that was the SCA company for allegedly agreeing with competitors, not to solicit senior level employees. And that's quite notable in that it is a nons solicit limited to senior level employees. Second, there was another indictment brought in March, 2021 against a nursing step staffing company and its former manager for allegedly agreeing with the competitor to allocate employee nurses and fixed wages of those nurses, serving medically fragile students in the same school district in Nevada. And that's in the district of Nevada. The third indictment came in July, 2021 charging a corporate dialysis and kidney care outpatient center Devita well known, uh, name in the industry and its former CEO with allegedly agreeing not to solicit certain employees. The antitrust division notably said in some of those press releases that the charges were the result of ongoing investigation into employee allocation agreements in the healthcare industry, motions to dismiss are currently pending in each of those healthcare, no poach cases. And we do expect to see more cases filed. Uh, no poach cases filed by the division. These motions to dismiss have been fully briefed and the DOJ has argued in these matters that wage fixing is price fixing. And a judge recently focused on that in the gen doll case denying a defendant's motion to dismiss and in the no poach matters, DOJ takes the position, um, that including both nons solicit and no agreements, um, such agreements are the same as market allocation cases, which have been traditionally prosecuted criminally. And so they should be treated as the guidance said, as I irredeemable per se, criminal offenses and that the government need not prove effect or harm or define a relevant market defendants in those cases, mounted vigorous defenses and, and DOJ has, um, cited to, um, past case law, but they really, there is not criminal precedent in this area. Um, and so we wait for those opinions, um, to come down and then if the district courts per seed, um, to allow the case, we'll see what a jury does and then we'll see potentially what, um, appellate courts do since the Sherman acts has the, the, which is the primary antitrust statute. Federal statute has been around since 1890. There really has never before been a criminal conviction for violating, uh, the antitrust laws through these no poach agreements. So it's not settled law. Um, and ultimately we'll just see what courts do recently. There was a fourth criminal, no poach indictment that was unsealed against, um, managers and employees and former employees of major aerospace companies. So that is notable. It's the first no poach criminal antitrust case, not in the healthcare, our industry. So that kind of takes us to where we are right now. And I'll throw it to Eric. Eric, what do you see happening with the FTC and across the current administration at this intersection of competition and, and non-compete and labor markets?
Speaker 3:Okay, well, uh, thanks Anne, for that very, uh, helpful background. And I get, I should start with the, the similar caveat that, uh, my comments today are for academic discussion purposes only and, and do not represent the views of, uh, my firm or any of our clients. Um, I could easily find myself defending one of these types agreements that we'll be discussing or even less likely, but still possibly at some point prosecuting a in this area. So my comments today are really from a, a devil's advocate, uh, perspective. Uh, so we can start with, uh, uh, with wage fixing as a category where DOJ is probably on its strongest ground. Um, the general case from the Eastern district of Texas that you mentioned, uh, you know, recently they're denied the defendant's motion to this dismiss the indictment, but it took, uh, it's a pretty dense decision. It took 15 dense over 15 dense reporter pages of analysis to, to thoroughly, uh, analogize wage fixing to price fixing. And I think I'm right in saying that the court admitted that there had been no prior case that held wage fixing to be a per se violation. And, and that means no case civilly or criminally. So, you know, the fifth circuit made will have something to say about that decision and we'll, we'll have to wait and see, um, next on the spectrum, the, the literal no poach agreements, um, between competitors not to hire each other's employees, which the DOJ is analogized to horizontal market allocation on a no court that I'm aware of has yet held that a no poach agreement S a per se violation. So to uphold a criminal prosecution in that type of agreement, a court would need to analogize, uh, traditional horizontal market allocation and buying that because of those market allocation, precedents employers were on notice that they could be subject to criminal prosecution. Uh, there seems to me, to me, to me anyway, some legitimate concerns about due process with a no code cases, you know, after all, if it took a DOJ announcement in 2016 to purportedly put employers on notice, that means that there had been no judicial decision that clearly did so beforehand. Again, we'll have to wait and see how these prosecutions play out, but they may not be a slam dunk, uh, for the DOJ. Uh, the final category are the non-solicitation agreements that, that you mentioned, uh, I'll go out on another lead here because I predict that DOJ is going to lose at least one of these cases, uh, either through a dismissed indictment or by acquittal. And the reason for that is that the non-solicitation cases, uh, are of the most attenuated from traditional categories of per se conduct. In fact, the night circuit recently held in a, in a civil case, challenging a non-solicitation agreement that the non-solicitation provision involved was a legitimate ancillary restraint in the collaboration agreement and therefore subject to the rule of reason. That's the, uh, the IA healthcare case, uh, from August last year. So to me, if conduct can be upheld under the rule of reason, then how can it be sufficiently clearly prohibited to put business people on notice that there are subject to criminal prosecution? Again, we'll have to see, but it appears that they DOJ is on its weakest ground with criminal prosecution of the non-solicitation agreements, um, to take the cue in your question about, uh, F the FTC, um, and the FTCs announcement that it's, it's going to be investigating its ability to, uh, bring enforcement actions concerning non-competes, I'll say that, you know, non-compete clauses in employment contracts are really just a whole different animal from the three categories that I, I just went through, uh, non-compete clauses, uh, predate the Sherman act certainly, and has certainly never been the subject of criminal antitrust enforcement, uh, state laws on non-competes are really all over the map. And, um, you know, the FTC saying that it's going to, you know, start looking into this area obviously is also the acknowledgement that there's really been no, uh, historic, uh, civil antitrust enforcement concerning competes. Um, I know that there's been some statements at the executive level in this area about, uh, noncompetes, including, uh, from directly from president Biden himself. Um, I think with more than a century of well-developed case law and statutes at the state at the state level, this may be an area where federal enforcers should give some to efforts to, uh, state enforcers. And, uh, you know, the FTC with, uh, recent events obviously may have more existential, uh, things on its mind before this, uh, with the Supreme court, uh, than, than waiting into a, to a new area of challenging, not, I think with all of that said, it's, it's important for me to make really clear that despite any skepticism I might be, um, convincing, uh, about the DOJs authority and to simply declare categories of conduct as per se violations and my prediction that the DOJ is going to lose at least one of its non solicitation cases. This is a very real area enforcement activity that puts, uh, companies at executives at risk, including criminally, uh, no individual certainly wants to be the, uh, the test case that it takes years to be exonerated in one of the federal circuit courts, or even in a Supreme court decision holding that, uh, the DOJ overreached by prosecuting something. It should have been the subject of that most criminal rather civil enforcement. So, um, maybe if we're gonna switch gears for him, we can take a couple of minutes to talk about how to steer clear becoming one of these test cases. And, uh, and if it's okay with you, maybe you want to kick it off with some takeaways for, uh, staying out of cross hair enforcers in this, this area.
Speaker 2:Yeah, I do. And I think, you know, you make a lot of very good points. I'll, I'll just echo one of'em that makes this area really confusing in a lot of ways and hard to counsel clients on it is you do have this body of case law, um, in the civil context and the labor employment context, dealing with non-compete and non-solicitation clauses in contracts and written agreements. Um, and now this, you know, area of criminalization of what sometimes seems like similar conduct, um, can be very confusing. And, you know, as you say, there's never been one of these criminal antitrust VI, you know, violations of a conviction, um, for no poach conduct, no poach, you know, I agree not to take your employees. You agree not to take mine if it were that clear. And the DOJ recognizes that I think in that guidance, you know, the 2016 guidance, because they use this qualifier, they say that they will prosecute naked wage fixing or no poach agreements. And naked is a term of art in the antitrust world. And to me naked, and this is just my, you know, taking a step back view on it is per se, which is what criminal conduct charged by the department of justice antitrust division always has been. And they've said recently that continues to be per se means without excuse, um, and no need to show harm, but if you need to put the qualifier on it naked to me, that's inconsistent with the concept of per se. So we are in this unique area and turning to kind of takeaways and, and dos and don'ts. I mean, we often counsel clients and do compliance training on, you know, how to stay on the good side of the antitrust laws. And this is a hard area, but one thing that's very critical is in meetings with competitors engagements with competitors, to really ensure that when you're talking about hiring or wage decisions that you're doing so unilaterally making independent decisions is always the right side of the antitrust laws for companies to be on. It sometimes gets difficult. If there are contract negotiations, if there are noncompete, nons, solicit provisions and contracts with vendors or suppliers in a vertical way, um, which the DOJ does seem focused on in some of these cases, um, even companies that are providing the same services to the same custom. So it's very important to be careful when talking, um, with competitors to be very careful and it talking about hiring and wages, and this takes training for HR professionals, I think, and anyone involved in the hiring, um, hiring chain think, you know, invest in antitrust compliance is really important. And yes, it's a little self-serving of me to say that, but you know, what I see is companies that do the investing in antitrust compliance and including HR staff and those with hiring authority and wage determination responsibilities, the questions that come out of those trainings are really, really good ones and help companies to steer clear, um, or healthcare systems or hospitals in the, in the health context. Um, you know, everyone involved in setting wages or hiring people needs to really think about these issues these days. And that's certainly what the 2016 and I trusted vision FTC guidance, um, you know, went to, was educating those in HR professionals. So those are some of the dos, the do nots is on the other side of it is ensuring that, especially when dealing with competitors that you don't exchange competitively sensitive information, including wages, hiring plans, I know this can be, I've gotten received some questions in the, in the times of COVID, um, whether you can, you know, provide bonuses for people coming in during a pandemic and a of thing. And of course you can, I mean, that's decided unilaterally, but talking about it in trade associations, or kind of benchmarking with competitors, if you're talking about actual wage or hiring practices, um, or even requirements that you might have, um, of employees, um, even if they go to things like vaccinations or health and safety, um, we have seen concerns if they're sharing of that information because in doing so in coming to an agree to composition, you might be reducing competition for labor or making those decisions collectively where they should have been made unilaterally. Um, so it really is important to be wary of one on one meetings that turn to talk of future wages or hiring, and future is different than the past in the antitrust con context. Um, talking about specific employees has so and so ever worked for you, um, higher, not higher, and that's not a reference check, but it's more, you know, are they on a, do not hire list? We've seen concerns like that. There might be a legitimate reason they are, but competitors talking to each other about categories of employees or specific employees, whether hire or don't hire, um, can raise, uh, antitrust agency concern. Um, and if those type of discussions take place in meetings with competitors, you know, we always advise those involved to meet immediately terminate the meeting, make their disapproval known. It's called a noisy withdrawal. You cannot be con you know, accused of, of agreeing with someone. If you tell them specifically, you don't agree, leaving a meeting immediately. And of course, uh, reaching out to corporate counsel, um, I think it's also a very good time to revisit contract provisions that contain non-competes, um, and, and, and do that compliance training and, you know, including HR and all of those in hiring. So that's kind of some of my thoughts on dos and don'ts in this world that, that we find ourselves in at the intersection of antitrust and labor and healthcare. Eric, do you have anything to add to that?
Speaker 3:Well, that's all, uh, great advice and I certainly agree with it all. I think maybe just to add, uh, if it's not immediately obvious to our, our, our, our listeners, you know, we've seen this activity focused on the healthcare industry, but there's really not any particular reason that these concerns would be limited to just the healthcare industry. So those outside of it, you know, shouldn't have any kind of, uh, false, you know, uh, sense of, uh, of comfort. I think one reason we've seen some of these agreements in, in healthcare is because the industry depends on specialized, uh, a specialized, highly trained workforce, and the competing providers are selling, uh, kind of a bespoke service delivered by individuals to individual patients rather than a commoditized product or service, but we could see the same in enforcement, uh, turn to other high tech industries. Uh, I think you've already mentioned one example in the, uh, in the aerospace industry. Uh, another that I of, and preparing for this call is that we could see, uh, these agreements come into scrutiny, you know, to the extent they exist in academia, for example, where educational institutions, uh, might well have, uh, mutual incentives, uh, not to hire free each other, or compete with each other in the same way, uh, over, over salary and benefits and that kind of thing. So, so think the points that you you've made and I'm about to make, could really apply in any industry. Um, so I certainly agree that, um, and, and anyone, uh, who's, um, responsible for hiring and compensation decision, uh, that if there are any agreements with other companies, especially competitors, you know, be prepared for of those to be, um, considered, uh, per se violations for compliance purposes and no such agreements to be undertaken without advice of antitrust counsel. Um, if you're dealing with another company on something concerning hiring or salary, that's, that's a third rail, these, and you've definitely gotta get anti good antitrust advice to, to help you justify that. Um, on the other side of the coin document, the independence of decision making, when it comes to decisions, uh, to hire or not hire from a competitor and the same for, for salary decisions, I think even short of agreements with competitors, and you mentioned this, and it's important to emphasize. There's no, really no reason to, uh, exchange information with competitors about hiring practices, uh, or salary or benefits, and, and even the terms of the non-competes that your company uses, uh, unless there are just really special circumstances. And those circum stances should be, uh, ones that you certainly, uh, run by an AmTrust lawyer, uh, on noncompetes, uh, be sure to check the governing state law, uh, both, uh, through cases and potential statutory prohibitions to make sure that your non-competes don't run AF file of any geographical, uh, temporal or other restric, and that they'll actually be enforceable as, as, uh, valid contract provisions. Um, I think it's also in the area noncompetes, it's important, uh, to think of noncompetes as well as other potential limitations on any, any limitation on the portability of an employee these days should be really tailored and to the, to the specific articulable business needs and justifications, um, that, that underlie that, that, uh, limitation of portability. And it's important in that to, to take into account the, uh, the level of the employee. Um, I think in general, it's safe to say that restrictions on employee portability will be harder to justify the lower the level of the employee and the lower the salary of the, of the employee, uh, in involved.
Speaker 2:Okay, great. Um, I, yeah, I think you make a lot of really good points. And I think one of the difficult we have when counseling clients is that a lot of that traditional, which is both employment and antitrust advice that council gives to narrowly tailor, um, whatever restraints are in place and to, you know, limit the duration in a per se world of criminal antitrust and not, you know, the DOJs position certainly seems to be that none of that matters that, you know, if they can show the existence of an, an alleged agreement, but if they can show that, that, and it is to beyond a reasonable doubt standard, that they're gonna have to show it, that you don't get to any of those things. Um, and that will be interesting because the oral arguments have focused on that. And it will be interesting to see how the cases play out if, and when they do go to trial. And then as you say, how the appellate courts and potentially even the Supreme court treat that same conduct dealing with the statute, the Sherman act that's been around since 1890 and never applied in this way. So that's my final thought. Eric, if you have any other final thoughts, please, uh, chime in otherwise, I'd like to thanks for joining us
Speaker 3:Today. Yeah. The only last, I think that's a great wrap up. Uh, and the only, the only last point is based on something you just said is just the sheer number of cases being brought and the geographic diversity to them makes it that much more likely that you could get divergent decisions and potentially a circuit split. So this issue that we're talking about now in a, in a podcast in 2022 could easily be something that we literally see on the Supreme court docket in just a couple of years,
Speaker 2:I think that's right. And then we'll have to do another podcast.<laugh> all right. Well, that's all for now. So thanks everyone for joining us.
Speaker 3:Take care.
Speaker 1:Thank you for listening. If you enjoy this episode, be sure to subscribe to a, a speaking of health law, wherever you get your podcasts to learn more about ALA and the educational resources available to the health law community. Do.