By Emily Unger
When the Sherman Act was enacted in 1890, it is likely that lawmakers did not consider its application to the labor market.[1] The Act, which focuses on broadly preventing behavior that would stifle competition, has mainly been applied on the seller-side as a way to protect consumers.[2] However, with the rise of wage-fixing and no-poach agreements in employment contracts, the Department of Justice (DOJ) has started to attempt applying the Sherman Act against employers in a labor setting.[3]
Wage-fixing and no-poach agreements can stifle competition and have been found to lead to lower wages for workers.[4] However, critics have argued that labor markets should be covered by labor laws, not antitrust, and that these practices may in some circumstances have “pro-competitive and efficiency-enhancing benefits.”[5] It is likely that critics on both sides of the argument are right, and that there are both benefits and limitations to these types of labor practices. However, it is clear that courts agree with the DOJ’s perspective, and labor issues are going to be the newest interpretation of the Sherman Act.[6]
Efforts to apply the Sherman Act to wage fixing and no-poach agreements began during the Obama administration. In 2016, the DOJ began to condemn naked pro se restraints in employment markets as illegal. This was expressed in the DOJ’s Guidance for Human Resource Professionals, which explicitly stated that it was illegal for employers to make express or implied no-poach agreements and affirmed the Department’s intention to prosecute employers found to be participating in these types of actions.[7] Later that year, in a speech recapping antitrust efforts during the Obama administration, Renata B. Hesse, the Assistant Attorney General of the Antitrust Division, reaffirmed that prosecuting employers for antitrust violations was a top priority for the department. She likened wage-fixing to “colluding to suppress the prices of auto parts or homes sold at auction.” [8]By 2020, the DOJ began to file criminal cases against employers, and by 2022 6 criminal cases had been filed.[9]
The first case that the DOJ brought was against a staffing agency in Texas.[10] The DOJ alleged that the plaintiffs colluded to fix the rates paid to physical therapists working with the staffing agencies.[11] On a motion to dismiss, the defendants attempted to separate their actions from the typical price-fixing covered by the Sherman Act, arguing that price-fixing does not include wages.[12] The Court, however, sided fully with the Government and held that price-fixing should be interpreted broadly and that “any naked agreement among competitors—whether by sellers or buyers—that fixes components that affect price meets the definition of a horizontal price-fixing agreement.”[13] Defendants further argued that because wages had not been previously included in the definition of price-fixing, there was insufficient judicial experience and fair notice that their behavior was per se illegal.[14] The Court disagreed, instead finding that “an agreement to fix the price of labor is ‘tantamount’ to an agreement to fix prices, and ‘thus falls squarely within the traditional per se rule against price fixing.’”[15] The Court further held that since wage-fixing could be included in the Sherman Act’s definition of price-fixing, defendants had ample notice and “decades of case law” showing that their behavior was illegal.[16] Ultimately, a jury acquitted both defendants, however the courts denial of defendants’ motion and legal reasoning set the precedent for future wage-fixing and no-poach cases.[17]
It did not take long for the DOJ to use the precedent set by Jindal to successfully bring an antitrust claim in this setting. In 2022, the DOJ succeeded in obtaining its first conviction in a criminal wage-fixing and no-poach suit.[18]The DOJ brought suit against VDA, a health care staffing firm in Nevada for colluding with a competitor to fix the wages of nursing employees and entering into a no-poach agreement.[19] VDA pled guilty and agreed to pay over $130,000 in criminal fines and restitution.[20] Given the outcome of this case and the DOJ’s focus on using antitrust law to monitor the labor market, it is likely more cases will be brought in the coming years.
At the state level, antitrust labor issues have focused on situations that indirectly keep wages down. These have mainly come up in instances of no-poach provisions in employment agreements. A no-poach provision is an agreement between companies not to compete for or hire each other’s employees.[21] Efforts to remove no-poach provisions began at the state level with the Washington State Attorney General launching a campaign targeting no-poach provisions in franchise agreements, which prevented employees from being hired at other franchised locations.[22]These no-poach provisions were in the agreements between franchisees and franchisors, meaning the employees being affected never even knew about their existence.[23] After successfully getting 57 franchisors to agree to remove no-poach provisions from employment agreements, several other state Attorney Generals joined forces to push franchisors to get rid of no-poach provisions.[24] By 2020, more than 200 franchisors had agreed to remove no-poach provisions from their employment contracts.[25] Several class action suits have also been brought directly by employees, seeking to get no-poach agreements removed from their employment contracts.[26] However, these have been met with limited success.[27] Unlike the per se standard applied in wage-fixing suits brought by the DOJ, in class actions involving no-poach agreements, courts typically apply the rule of reason standard, which requires the court to look at both the positive and negative effects of the agreement.[28]
Despite these efforts at both the state and federal level, many critics believe that the DOJ is taking the meaning of the Sherman Act too far. In response to the criminal suit brought by the DOJ in Jindal, the Chamber of Commerce filed a brief arguing that “The Justice Department was overstepping…because the company couldn’t know the behavior was “per se” illegal — an outright breach of the law irrespective of its effects — since the government’s argument had not been tested in court.”[29] However, as mentioned earlier, courts have since disregarded this argument.[30] Others have expressed concern that the DOJ is overstepping by attempting to apply antitrust laws in an already regulated area.[31] Attorneys in private practice have expressed concern as well. J. Mark Gidley, the chair of White & Case’s global Antitrust and Competition practice remarked that “If antitrust is no longer about low prices but about a clean environment and wages and this, that and the other, it loses its compass.”[32] Although these critiques have merit, it seems the court in recent cases such as Jindal have the right of it. The fact that the Sherman Act has not been applied in this way previously does not make it an inaccurate interpretation, particularly when it is clear that the purpose behind the action is to stifle competition.[33] However, it must be noted that wage-fixing and no-poach agreements may not be anticompetitive in every situation. Researchers have noted that, in certain situations, wage-fixing and no-poach agreements could have benefits, such as incentivizing investment in human capital, safeguarding intellectual property rights, and greater labor market stability.[34] Although it is very possible that wage-fixing and no-poach agreements can lead to these positive effects, the situations are likely limited to those involving highly educated and highly skilled workers.[35] A middle of the road solution could resolve this by limiting these types of practices to the types of situations where they would be beneficial, and in turn protecting workers in lower paying, low-skilled jobs.[36]
Only time will tell if antitrust law will be broadly applied to labor issues. However, the current trajectory of the DOJ’s court cases make it seem likely that this will be the case.[37] Critics of this application of the Sherman Act have raised valid concerns over the possible effects this could lead to.[38] However, as the Court in Jindal noted, applying the Sherman Act’s definition of price-fixing to wages and viewing no-poach agreements as anticompetitive is not as big of a stretch as it may seem.[39] Given the possible benefits that wage-fixing and no-poach agreements can have in certain situations, courts should be careful to interpret this application of the Sherman Act narrowly in order to avoid preventing the competition and efficiency enhancing benefits that these practices could bring.[40]
[1] See The Antitrust Laws, Federal Trade Commission: Competition Guidance (last visited Mar. 23, 2023), https://www.ftc.gov/advice-guidance/competition-guidance/guide-antitrust-laws/antitrust-laws.
[2] See 15 U.S.C. §1.
[3] Eduardo Porter, A New Legal Tactic to Protect Workers’ Pay, N.Y. Times (Apr. 14, 2022), https://www.nytimes.com/2022/04/14/business/economy/wages-antitrust-law-us.html?searchResultPosition=3.
[4] Renata B. Hesse, Acting Assistant Att’y Gen., Antitrust Division, U.S. Dep’t of Just., Remarks at the UCL and Privacy Law Institute Annual Golden State Antitrust: The Measure of Success: Criminal Antitrust Enforcement During the Obama Administration (Nov. 3, 2016); Michael A. Lindsay, McDonald’s and Medicine: Developments in the Law of No-Poaching and Wage-Fixing Agreements, 33 Antitrust 18 (2019).
[5] Eduardo Porter, A New Legal Tactic to Protect Workers’ Pay, N.Y. Times (Apr. 14, 2022), https://www.nytimes.com/2022/04/14/business/economy/wages-antitrust-law-us.html?searchResultPosition=3; John Pecman et al., No-Poach and Wage-Fixing Agreements – A Canadian Perspective, 17 Competition L. Int’l 49, 50 (2021).
[6] United States v. Jindal, No. 4:20-cr-00358, 2021 U.S. Dist. LEXIS 227474 (E.D. Tex. Nov. 29, 2021); Press Release, Dep’t of Just., Health Care Company Pleads Guilty and is Sentenced for Conspiring to Suppress Wages of School Nurses (Oct. 27, 2022) (on file with author).
[7] Department of Justice: Antitrust Division, Antitrust Guidance for Human Resource Professionals 1, 3 (2016).
[8] Renata B. Hesse, Acting Assistant Att’y Gen., Antitrust Division, U.S. Dep’t of Just., Remarks at the UCL and Privacy Law Institute Annual Golden State Antitrust: The Measure of Success: Criminal Antitrust Enforcement During the Obama Administration (Nov. 3, 2016).
[9] Eduardo Porter, A New Legal Tactic to Protect Workers’ Pay, N.Y. Times (Apr. 14, 2022), https://www.nytimes.com/2022/04/14/business/economy/wages-antitrust-law-us.html?searchResultPosition=3.
[10] Id.
[11] Jindal, 2021 U.S. Dist. LEXIS 227474, at *3.
[12] Id. at 11.
[13] Id. at 13.
[14] Id. at 21.
[15] Id. at 22.
[16] Id. at 29.
[17] United States v. Jindal, 2022 U.S. Dist. LEXIS 143717 (E.D. Tex. Aug. 11, 2022).
[18] Press Release, Dep’t of Just., Health Care Company Pleads Guilty and is Sentenced for Conspiring to Suppress Wages of School Nurses (Oct. 27, 2022) (on file with author).
[19] Id.
[20] Id.
[21] Division Update Spring 2018: No More No-Poach: The Antitrust Division Continues to Investigate and Prosecute “No-Poach” and Wage-Fixing Agreements, Dep’t of Just. (Apr. 10, 2018), https://www.justice.gov/atr/division-operations/division-update-spring-2018/antitrust-division-continues-investigate-and-prosecute-no-poach-and-wage-fixing-agreements.
[22] Michael A. Lindsay, McDonald’s and Medicine: Developments in the Law of No-Poaching and Wage-Fixing Agreements, 33 Antitrust 18 (2019).
[23] No-Poach Initiative: Ending a Rigged System for Hourly Employees at Corporate Franchises, Wash. St. Att’y Gen. Off. 1 ,4 (2020), https://agportal-s3bucket.s3.amazonaws.com/uploadedfiles/Another/News/Press_Releases/NoPoachReport_June2020.pdf.))
[24] Michael A. Lindsay, McDonald’s and Medicine: Developments in the Law of No-Poaching and Wage-Fixing Agreements, 33 Antitrust 18 (2019).
[25] No-Poach Initiative: Ending a Rigged System for Hourly Employees at Corporate Franchises, Wash. St. Att’y Gen. Off. 1 ,4 (2020), https://agportal-s3bucket.s3.amazonaws.com/uploadedfiles/Another/News/Press_Releases/NoPoachReport_June2020.pdf.
[26] Spencer J. Parts, No More No-Poach? An (Early) Retrospective on Public and Private Antitrust Enforcement in the Fight against Franchise No-Poach Agreements, U. of Chi. L. Rev. Online (May 5, 2022), https://lawreviewblog.uchicago.edu/2022/05/05/symposium2022-parts-no-poach-agreements/
[27] Id.
[28] DeSandes v. McDonalds, No. 17 C 4857, slip op. at 11 (N. D. Ill. July 28, 2021).
[29] Eduardo Porter, A New Legal Tactic to Protect Workers’ Pay, N.Y. Times (Apr. 14, 2022), https://www.nytimes.com/2022/04/14/business/economy/wages-antitrust-law-us.html?searchResultPosition=3.
[30] Jindal, 2021 U.S. Dist. LEXIS 227474.
[31] Eduardo Porter, A New Legal Tactic to Protect Workers’ Pay, N.Y. Times (Apr. 14, 2022), https://www.nytimes.com/2022/04/14/business/economy/wages-antitrust-law-us.html?searchResultPosition=3.
[32] Id.
[33] See Jindal, 2021 U.S. Dist. LEXIS 227474.
[34] John Pecman et al., No-Poach and Wage-Fixing Agreements – A Canadian Perspective, 17 Competition L. Int’l 49, 50 (2021).
[35] Evan P. Star et al., Noncompete Agreements in the U.S. Labor Force, 64 U. of Chi. J. of L. & Econ. 53, 55 (2021).
[36] Id. at 55.
[37] United States v. Jindal; Press Release, Dep’t of Just., Health Care Company Pleads Guilty and is Sentenced for Conspiring to Suppress Wages of School Nurses (Oct. 27, 2022) (on file with author).
[38] Eduardo Porter, A New Legal Tactic to Protect Workers’ Pay, N.Y. Times (Apr. 14, 2022), https://www.nytimes.com/2022/04/14/business/economy/wages-antitrust-law-us.html?searchResultPosition=3; John Pecman et al., No-Poach and Wage-Fixing Agreements – A Canadian Perspective, 17 Competition L. Int’l 49, 50 (2021).
[39] Jindal, 2021 U.S. Dist. LEXIS 227474.
[40] John Pecman et al., No-Poach and Wage-Fixing Agreements – A Canadian Perspective, 17 Competition L. Int’l 49, 50 (2021).