One year after the first criminal indictment for wage-fixing, a Texas federal district court has ruled that an agreement to fix wages is a
per se violation of Section 1 of the Sherman Act.
While over the last century the Supreme Court and lower federal courts have developed a robust body of case law interpreting the Sherman Act’s somewhat enigmatic prohibition on "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States,"
1 wage-fixing and so-called "no-poach" agreements have received little attention. The spotlight on wage-fixing has shifted slowly—beginning in 2016 with the joint Department of Justice (DOJ) and Federal Trade Commission (FTC) warning (and related HR guidance) that no-poach and wage-fixing agreements would be prosecuted criminally, a flurry of recent civil litigation, the first criminal indictments, and the Biden administration's July 2021 executive order pledging to target antitrust enforcement efforts on labor markets.
The court's opinion denying defendants' motion to dismiss in
United States v. Jindal2—the Justice Department's first-ever Sherman Act wage-fixing prosecution (discussed
here)—opens up a new frontier for federal antitrust enforcement, which has traditionally focused more on sellers of goods and services than on buyers of labor.
The Alleged Conspiracy
The government's case targets two individuals, Neeraj Jindal and John Rodgers, for allegedly conspiring with competitors to suppress wages. Jindal owned a physical therapist and physical therapist assistant staffing company; Rodgers was both a clinical director at the company and a physical therapist who contracted with the company. The company's business model involved matching patients with physical therapists (PTs) or physical therapist assistants (PTAs) in response to referrals from home health agencies. The company handled the PTs' and PTAs' billing, and it profited by charging more for the PTs' and PTAs' services than it paid the PTs and PTAs.
The alleged wage-fixing conspiracy, which was simple and straightforward, makes for an ideal test case: Jindal and Rodgers, acting on behalf of the company, proposed to the owners of several competing staffing companies that they simultaneously lower the PTs' and PTAs' pay rates. One competitor agreed, and Jindal and Rodgers’ company thereafter lowered its pay rates.
Background
The Sherman Act – Section 1
Section 1 of the Sherman Act prohibits "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States."
3 But under governing Supreme Court precedent, only unreasonable restraints on trade are outlawed.
There are two standards for determining whether a restraint of trade is unreasonable:
per se and "rule of reason." The first approach brands certain restraints as unlawful
per se—that is, as "so plainly anticompetitive that no elaborate study of the industry is needed to establish their illegality."
4 The "rule of reason" standard balances the restraint’s anticompetitive and procompetitive effects through a resource-intensive and context-specific inquiry designed to "distinguish[ ] between restraints with anticompetitive effect that are harmful to the consumer and restraints stimulating competition that are in the consumer’s best interest."
5 Although it is not an express limitation in the Sherman Act or its jurisprudence, DOJ has a longstanding policy of only bringing criminal antitrust prosecutions based on
per se violations of the act.
The Jindal Decision
The question before the court in
Jindal was which of these standards should apply to agreements not to compete for workers. In bringing these criminal charges against Mr. Jindal and his co-defendant, the government pursued the
per se approach, and that decision formed the defendants' primary ground for moving to dismiss. Specifically, the defendants maintained that wage-fixing does not constitute a
per se violation, and because the indictment does not allege any facts supporting the rule of reason, it should be dismissed. In support of this position, the defendants set forth a number of arguments. The court rejected each of these.
First, the defendants argued that although it is well established that
price-fixing constitutes a violation of the Sherman Act,
wage-fixing is not the same as price-fixing and therefore does not constitute a
per se violation. In rejecting this argument, the court noted that other courts have previously held that (i) a price-fixing conspiracy can pertain to services, not just goods—after all, a "wage" is simply the price of labor, which is a service—and (ii) the Sherman Act prohibits price-fixing conspiracies among buyers, not just sellers. In fact, the Supreme Court recognized more than a century ago that the Sherman Act applies to labor markets, holding that an effort by shipowners to fix the wages of seamen violated the Sherman Act.
6
Second, the defendants argued that the indictment was insufficient because it failed to allege that the defendants had agreed to fix prices paid by consumers. The court dispatched this argument quickly, observing that it is well established that the Sherman Act "does not confine its protection to consumers."
7
Third, the defendants argued that even if wage-fixing is a violation of the Sherman Act, it is not a valid basis for a
per se violation, and the government therefore must meet its burden under the more burdensome rule of reason. In pressing this argument, the defendants relied on a quirk of the Supreme Court's Sherman Act case law: "the
per se rule is appropriate only after courts have had considerable experience with the type of restraint at issue",
8 in order to determine whether it has the requisite "manifestly anticompetitive effect."
9 In essence, the defendants argued that courts lacked sufficient experience with wage-fixing to justify classifying it as a
per se violation. In response, the court noted that many lower courts had recognized that wage-fixing conspiracies are
per se illegal, albeit in civil cases.
10 The fact that the government had never charged a wage-fixing conspiracy before did not, the Court observed, make it any less illegal; it just made the defendants "unlucky."
11 In any event, wage-fixing is just a subspecies of price-fixing—and price-fixing is the quintessential
per se violation of the Sherman Act.
12
Finally, the defendants also raised a number of constitutional arguments, which the court rejected. These arguments primarily related to the defendants' purported lack of notice that their conduct was criminal, given that this is the first prosecution of its type. Defendants in similar future actions will, of course, have an even harder time asserting these defenses.
For now, the district court's order means that the prosecution will proceed. But that ruling is not likely to be the final word on this issue; the Fifth Circuit and the Supreme Court may have opportunities to weigh in. And in the absence of appellate precedent, other district courts hearing other cases may very well come to a different conclusion.
Implications: More Wage-Fixing Prosecutions Likely
The Jindal indictment in December 2020 was the DOJ's first criminal prosecution targeting the labor markets, but it was quickly followed by other cases this year. Following the Jindal indictment, the DOJ challenged alleged no-poach agreements, as well as another wage-fixing agreement. In
United States v. Surgical Care Affiliates, LLC and SCAI Holdings, LLC,
13 the DOJ alleged that Surgical Care Affiliates, an operator of outpatient medical care centers, had agreed with two competitors not to solicit each other's senior-level employees. Similarly, in
United States v. Hee,
14 the DOJ has alleged that a healthcare staffing agency and its former regional manager conspired with competitors to allocate nurses and fix the nurses' wages.
The
Jindal ruling is an important decision in the DOJ's ongoing efforts to increase enforcement against alleged antitrust violations in labor markets. We will likely learn soon whether the court's holding has staying power. Indeed, in
Hee, the DOJ has also relied on the theory that wage-fixing constitutes a
per se violation of Section 1 of the Sherman Act. The court has not yet ruled on the defendants' motion to dismiss.
More cases like
Jindal and
Hee will surely follow, especially if the government's legal theory is upheld by the
Hee court as well. Indeed, earlier this week, the DOJ and the FTC jointly hosted a virtual workshop on labor market competition. During his introductory remarks, the new Assistant Attorney General in charge of the DOJ Antitrust Division, Jonathan Kanter, laid out his view that many of the economic problems faced by workers have their "roots in collusion and unfair practices in the labor markets" and in concentration, and anticipated that the Antitrust Division will be working closely with the FTC on issues relating to competition in the labor market.
15
Whether the government will see success in
Hee and other labor market cases and investigations, and what view the appellate courts will take on the government's
per se legal theory, remain to be seen. In particular, it is unclear whether the
Jindal court’s reasoning and holding that wage-fixing is a
per se violation of the Sherman Act will apply to alleged no-poach or non-solicitation agreements. Arguably, those types of agreements are less clearly comparable to price-fixing. For now, if nothing else, the decision signals that courts are open to employing the
per se approach in wage-fixing cases, and it should serve as a reminder to employers that a wage is a price, and those who conspire with competitors to fix wages now risk criminal liability under the Sherman Act.
Endnotes
1 15 U.S.C. § 1.
2 No. 4:20-CR-00358, 2021 WL 5578687 (E.D. Tex. Nov. 29, 2021).
3 15 U.S.C. § 1.
4 Texaco Inc. v. Dagher, 547 U.S. 1, 5 (2006) (quoting
Nat'l Soc'y of Prof'l Engineers v. United States, 435 U.S. 679, 692 (1978)).
5 Ohio v. Am. Express Co., 138 S. Ct. 2274, 2284 (2018) (alteration in original) (quoting
Leegin Creative Leather Prods, Inc. v. PSKS, Inc., 551 U.S. 877, 886 (2007)).
6 Jindal, 2021 WL 5578687, at *5 (citing
Anderson v. Shipowners' Ass'n of Pac. Coast, 272 U.S. 359, 361–65 (1926)).
7 Id. at *6.
8 Id. at *7.
9 Id. at *2 (quoting
Leegin, 551 U.S. at 886).
10 Id. at *7.
11 Id. at *10.
12 Id. at *9–10.
13 No. 3:21-cr-00011-L (N.D. Tex. filed Jan. 5, 2021).
14 No. 2:21-cr-00098 (D. Nev. filed Mar. 26, 2021).
15 Matthew Perlman,
DOJ Antitrust Chief Says Expect More Collaboration with FTC, Law360 (Dec. 6, 2021), https://www.law360.com/employment-authority/articles/1446059/doj-antitrust-chief-says-expect-more-collaboration-with-ftc.
