Connecticut Federal Court Hands DOJ Another Loss In Its Campaign to Criminally Prosecute Labor Market Hiring Restraints

Connecticut Federal Court Hands DOJ Another Loss In Its Campaign to Criminally Prosecute Labor Market Hiring Restraints

May 2, 2023, Covington Alert

On April 28, 2023, Judge Victor A. Bolden of the United States District Court for the District of Connecticut granted defendants’ Rule 29 Motion for Judgment of Acquittal in United States v. Patel, stymieing the Justice Department’s latest effort to prosecute agreements among competitors to refrain from hiring or soliciting each other’s employees as potential criminal violations of the antitrust law.

When the DOJ Antitrust Division initially issued the indictment, Assistant Attorney General Jonathan Kanter highlighted this case as exemplifying the Division's prioritization of aggressive enforcement in labor markets, stating that the Antitrust Division “will vigorously prosecute this and other cases in which corporate executives undermine the careers of their own workers in order to reap undeserved profits and deprive our fellow citizens of opportunities to earn a competitive wage.”^[1]  

The indictment charged a former manager of aerospace engineering company Pratt & Whitney and executives at five of the company’s subcontracting suppliers.  It alleged that defendants participated in a per se unlawful conspiracy in violation of Section 1 of the Sherman Act to restrict the hiring and recruiting of engineers and other skilled labor employees by allegedly entering into a series of “no-poach” agreements between and among their respective companies from 2011 through 2019.

After several weeks of trial, defendants filed a joint motion for acquittal after the close of the government’s case-in-chief.  The court granted defendants’ motion, and agreed with the defendants’ argument that the evidence did not “permit a reasonable juror to find that the alleged agreement amounted to a naked, non-ancillary restraint.”  Specifically, the court assumed for purposes of its analysis that the government proved “that there was an agreement between Defendants to restrict hiring” and that the government “submitted sufficient evidence of the relevant market.”  However, the court observed that the evidence showed that hiring between and among the companies was not just theoretically possible but commonplace.  On that basis, the court concluded that the agreement “had so many exceptions that it could not be said to meaningfully allocate the labor market of engineers from the supplier companies working on Pratt and Whitney projects.”  As such, the court concluded that “a[s] a matter of law, this case does not involve a market allocation under the per se rule.”

The current result represents another setback in the Justice Department’s criminal antitrust enforcement efforts in labor markets.^[2]  Rather than accepting the per se nature of the conduct, the court instead focused on the implementation of the alleged market allocation agreement, and, had the case gone to the jury, the court would have instructed the jury that the government had the burden of proving that the alleged hiring restrictions amounted to a naked, non-ancillary restraint.  This case underscores the challenges of prosecuting criminally alleged restraints in labor markets where the government must prove each element of the alleged violation beyond a reasonable doubt. 

Despite this most recent trial loss, the Division has indicated that it will continue to prioritize the criminal enforcement of the antitrust laws in labor markets.  In order to avoid the potential costs and burdens of investigations as well as potential sanctions in the event that a violation is established, companies should be sensitive to antitrust issues that may arise in the labor context, including through compliance training and careful consideration of structuring and managing relationships with suppliers or vendors even where there is no direct competition between companies for products or services.

How Covington Can Help

Our antitrust practice group includes attorneys who served in senior leadership roles at the DOJ, including former Chiefs of the DOJ Antitrust Division San Francisco Office and a former Assistant Attorney General of the DOJ Antitrust Division.  Our team has decades of experience advising on all aspects of civil and criminal antitrust matters, including defending against DOJ investigations and counseling clients on employee wage and “no poach” antitrust issues.  We can provide detailed and practical insight into how these developments might apply, as well as compliance training for employees and briefings for senior management.

If you have any questions concerning the material discussed in this client alert, please contact the members of our Antitrust/Competition practice.