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Could an Employee Non-Solicit Land You in Jail???

November 2, 2021 by in "Two Minute Takeaway"

Two recent federal indictments should have attorneys and courts re-thinking employee non-solicitation provisions.  In U.S. v. Hee and U.S. v. Surgical Care Affiliates, the Department of Justice brought criminal antitrust charges against corporate and individual defendants for entering “no-poach” agreements with competitors. 

The indictments allege that defendants agreed with competitors not to solicit certain employees and illegally restrained the market for those employees’ services.  The problem is, employment attorneys often advise their clients to take similar actions to comply with employee non-solicitation provisions.   

The indictment in U.S. v. Surgical Care Affiliates alleges conduct that sounds typical of a cautious client trying to comply with a non-solicitation provision:

Defendants instructed “recruiters not to solicit senior-level employees of each other’s companies – for example, on or about November 11, 2013, a senior human resources employee at Company A instructed a recruiter ‘Please do not schedule a call w/[candidate], thanks.  She would have had to apply for the job first.  We cannot reach out to SCA folks.  Take any SCA folks off the list.”  Id. at ¶ 11(c).

The indictment further alleged:

“Individual 1 instructed other executives of SCA: ‘We should continue to flag [Company A] on our ‘do not call’ list to recruiters – it is OK if we get an inbound inquiry and the leader has communicated within [Company A] that they want to leave, but outbound calls should not be occurring.’”  Id at 11(f).

The indictment in U.S. v. Hee similarly concerned conduct that might occur in attempt to comply with an employee non-solicit provision.  Two staffing companies were awarded contracts to procure care givers for special needs students in Las Vegas’s Clark County School District.  The companies agreed not to poach each other’s nurses while working side-by-side on the contract.  One executive emailed another “Per our conversation, we will not recruit any of your active CCSD nurses.”  Id. at 14(a).  

Non-solicitation provisions typically are written broadly to prohibit both “direct” and “indirect” solicitation.  Cautious attorneys therefore often advise clients to avoid hiring from an executive’s former employer lest it create an appearance of “indirect” solicitation.  If the risk of solicitation is great — such as when companies are working closely together — one company may reach out to the other to assure it that no solicitation is taking place, similar to the executive in Hee.   

Further, it is not uncommon for two competing companies to have crossing non-solicit obligations when each company employs restricted ex-executives of the other company, and a de facto mutual non-solicit develops.  The competing companies may enjoy the stability created by this non-competition, and so much the better if counsel blesses the arrangement as necessitated by non-solicit provisions.  These two indictments highlight the risk that in attempting to comply with non-solicit provisions, counsel might accidentally make the client the target of a criminal inquiry.  

Surgical Care and Hee reflect the DOJ’s increased focus on anti-competitive agreements that restrict employee mobility.  Regarding the Surgical Care indictment, Assistant Attorney General Makan Delrahim announced: 

The charges demonstrate the Antitrust Division’s continued commitment to criminally prosecute collusion in America’s labor markets.  A freely competitive employment market is essential to the health of our economy and the mobility of American workers.  Along with our law enforcement partners, the division will ensure that companies who illegally deprive employees of competitive opportunities are not immune from our antitrust laws.

Conclusion

Ubiquitous employee non-solicitation provisions can have similar anti-competitive effects as the agreements at issue in Surgical Care and Hee.  Employment counsel and their clients now face a bind.  If they hire key employees subject to non-solicitation provisions, do they continue to solicit employees from the competitor and face possible litigation for improper solicitation?  Or do they refrain from hiring from the competitor and face the remote but catastrophic risk of a criminal proceeding?  As important, how do they communicate with HR, recruiters, and even competitors about solicitation restrictions so as to minimize incriminating sound bites?  With lengthy prison terms available under the Sherman Act, and the DOJ taking a newly aggressive approach on the issue, it just got harder to advise clients regarding complying with, and enforcing, employee non-solicitation provisions.