Warning to Employers: Court Permits Criminal Prosecution of Wage-Fixing Agreement

Employers have received the clearest signal yet that the courts will permit criminal prosecutions of employee wage-fixing agreements as per se violations of the Sherman Act. Last week, a district court in the Eastern District of Texas, in United States v. Jindal et al., permitted a criminal prosecution of the owner and a director of a staffing company to go forward, and denied motions of defendants to dismiss the charges.¹ In so doing, the court has, for the first time, permitted a criminal wage-fixing prosecution to proceed as a per se violation of the Sherman Act.

The Jindal court held that wage fixing is a form of price fixing, and therefore can also be considered per se illegal. Moreover, the court rejected the defendants' arguments that because this was the first time the government had prosecuted a wage-fixing conspiracy criminally, defendants were not on notice that wage-fixing conspiracies were per se unlawful as price-fixing agreements and subject to criminal prosecution.

The court's opinion has provided the government additional ammunition to prosecute horizontal wage-fixing conspiracies, and means that the government will undoubtedly continue to adopt an aggressive posture with respect to such agreements. Companies should take this opportunity to carefully review any agreements, particularly with competitors, that could be construed to be a restraint on the supply of labor. While the Jindal case is the first criminal prosecution of this type, it is unlikely to be the last.

Background

Defendant Neeraj Jindal owned a therapist staffing company and defendant John Rodgers was a clinical director for the same company. The company contracted with therapists to provide in-home physical therapy to patients. Therapist staffing companies, such as Jindal's company, receive patient referrals from home health agencies and staff their therapists to provide in-home care. Therapist staffing companies pay therapists a set price to provide in-home care, and bill home health agencies for that care. Companies can increase their margins by paying therapists at a lower rate, but the companies compete with each other to hire therapists.

The indictment alleges that defendants did the opposite. Rather than compete to hire therapists, defendants recruited other therapist staffing companies to artificially fix the pay rates of therapists.

The Department of Justice indicted Jindal and Rodgers, alleging that their agreement with competitors to fix the rates at which therapists would be paid amounted to price fixing, which is a per se violation of the Sherman Act. Defendants filed a motion to dismiss the Sherman Act count, arguing, in part, that the wage fixing alleged in the indictment does not constitute a per se violation of the Sherman Act. Even if it does, the defendants argued, the Sherman Act count violated the Fifth Amendment because the defendants did not have fair notice that the conduct was criminal.²

The Court's Opinion

Judge Amos Mazzant of the Eastern District of Texas rejected the defendants' arguments, holding that wage-fixing agreements like the one alleged here are a form of horizontal price fixing. Thus, wage fixing constitutes a per se violation of the Sherman Act. The court also rejected defendants' secondary constitutional arguments, ruling that wage-fixing agreements had long been prosecuted as per se violations in civil matters, and the simple fact that they were the first to be held criminally culpable by the DOJ does not mean they had inadequate notice that agreements among competitors to fix wages are per se illegal.

A conspiracy to fix wages, according to the court, is a conspiracy to fix the price of labor. The indictment's use of the term "wages" to refer to the pay rates of the therapists at issue rather than using the term "prices" does not change the fact that the therapist staffing companies were purchasers of labor and defendants conspired to fix the price of that labor.

As the court noted, there is no doubt that the Sherman Act outlaws price fixing not only by sellers of goods and commodities, but also by buyers, such as the staffing centers here. And, courts have long held that price-fixing agreements can include agreements among competitors to fix the price of labor.³  Because (1) price fixing is per se anticompetitive, (2) price fixing applies to purchasers as well as sellers, and (3) employers are purchasers of labor, the court ruled that the conspiracy alleged in the indictment was a naked horizontal agreement to fix the price of labor, and was therefore a per se Sherman Act violation.

The lack of any prior criminal prosecution for a wage-fixing conspiracy does not render the prosecution unconstitutional, the court held. The defendants were sufficiently on notice that wage-fixing conspiracies were per se unlawful as price-fixing agreements, and subject to criminal prosecution. As the court stated, "[t]he lack of criminal judicial decisions only indicates Defendants' unlucky status as the first two individuals that the Government has prosecuted for this type of conduct[.]"⁴

Key Takeaways

The DOJ's victory opposing the Motion to Dismiss in Jindal is a clear indication that antitrust scrutiny of the labor market will continue. And, the DOJ has not limited itself to wage-fixing conspiracies. Rather, the government has also stepped up enforcement against employee "no-poach" agreements. In January of 2021, the DOJ indicted Surgical Care Affiliates, LLC for allegedly conspiring with a Texas-based company not to solicit each other's senior-level employees, which that indictment alleges was per se unlawful as a market-allocation agreement.⁵ Companies should follow both cases closely to monitor how the DOJ criminally enforces the Sherman Act in the labor market.

Companies should avoid any horizontal agreements (agreements with competitors) that could be construed as wage-fixing or no-poach agreements. Companies should also carefully analyze vertical agreements, such as those with vendors and customers, to ensure that they withstand antitrust scrutiny. The DOJ has not historically charged horizontal agreements criminally, based on its policy of bringing criminal cases only related to per se violations. However, in 2016, the FTC and DOJ warned in their Antitrust Guidance for HR Professionals that DOJ "intends to proceed criminally against naked wage-fixing or no-poaching agreements." In addition, the government's renewed focus on wage-fixing and no-poach agreements is likely to result in increased civil enforcement in these areas, even against companies engaged in vertical agreements that may violate the Sherman Act. Indeed, Jonathan Kanter, the new head of the Antitrust Division at DOJ, noted this week that, moving forward, companies can expect rooting out anticompetitive conduct in labor markets to be a top priority for the division, and prosecutors will bring and prosecute labor market cases.⁶

The DOJ's crackdown on no-poach and wage-fixing conspiracies underscores the need for employers to implement and maintain robust and effective antitrust compliance programs.  Companies should also develop and provide training to help employees and the company identify potential antitrust issues, and encourage employees to report such issues to management.  Not only can these programs prevent criminal conduct before it occurs, but they can also serve to limit a company's criminal liability if and when employees violate the antitrust laws. The Department of Justice, in guidance released in 2019, announced that it would consider a company's compliance program in determining whether to bring criminal charges against a company for antitrust violations. Companies with effective antitrust compliance programs stand a better chance of avoiding criminal antitrust liability.

Buchanan's antitrust team offers guidance to help clients develop corporate compliance programs, manage government investigations, and avoid antitrust liability.