Aerospace Executive’s Prosecution for Antitrust Conspiracy Shows Tailwinds for DOJ’s Labor Market Investigations

Last week, a Connecticut district court unsealed a criminal complaint and affidavit alleging that a former aerospace executive, along with managers and executives of several suppliers of engineering services, engaged in an eight-year criminal antitrust conspiracy to restrict hiring and recruiting of engineers and other skilled workers. The case represents the latest of several DOJ criminal cases launched in the last year into so-called “no-poach” and “non-solicit” agreements between employers.

The complaint evidences the DOJ Antitrust Division’s ongoing emphasis on rooting out labor market conspiracies that prevent competition in hiring and therefore suppress wages. Jonathan Kanter, the newly confirmed Assistant Attorney General for the Antitrust Division, said of the complaint: “We 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.” While DOJ has pursued civil antitrust cases against such non-solicitation agreements dating back to at least 2010, in the past year it has upped the ante by bringing criminal charges based on alleged wage-fixing and agreements not to solicit or hire employees. A federal district court in Texas recently upheld DOJ’s position on a motion to dismiss in a wage-fixing case, while similar motions remain pending in several other cases involving no-solicit/no-hire allegations.

While the Antitrust Division is known to be investigating “no-poach” agreements in different industries, the criminal cases it has filed so far all have been in the healthcare space, while the allegations here involve an alleged conspiracy in the aerospace engineering sector. Given the alleged involvement of multiple unnamed individuals and companies in that industry, additional charges may well be forthcoming.

One other notable element in this new complaint is the vertical relationship between the defendant’s company and the suppliers. According to an affidavit by a Defense Criminal Investigative Service agent, the aerospace company had outsource arrangements with five different suppliers, whereby each supplier would assign engineers and other skilled workers to complete projects for the company. The affidavit alleges that from 2011 to 2019, the aerospace executive and at least eight co-conspirators from the suppliers agreed to allocate employees working on projects for the company by restricting the hiring and recruiting of engineers and other skilled workers between and among the various suppliers.

DOJ previously has acknowledged that non-solicit or no-hire agreements that are reasonably necessary to a separate legitimate business collaboration, including with suppliers, vendors, or consultants, are not per se unlawful (and therefore potentially criminal), but rather are subject to the more flexible “rule of reason” standard of antitrust analysis.  Defendants may argue in cases with facts similar to this case that the “ancillary restraints doctrine” precludes per se, and thus criminal, treatment. Assuming it proceeds to litigation, this case should provide greater clarity on how the ancillary restraints doctrine applies in a criminal labor market case.

Also of note is the fact that the defendant was arrested rather than being allowed to appear on a summons. In the past, the Antitrust Division typically arrested individuals in antitrust cases only if the individual presented a flight risk, and the public documents do not indicate such a risk was present here. After appearing remotely in federal court, the defendant was released on a $100,000 bond with travel restrictions.

This case presents yet another warning to employers that DOJ is actively investigating non-solicit, no-hire, and wage-fixing agreements between employers across different industries and is prepared to prosecute such agreements criminally. Notably, the existence of a legitimate business relationship between the employers—such as vendor and customer or prime and sub-contractor—does not necessarily immunize such agreements from prosecution. If you have questions about compliance with DOJ’s guidance in this area, please reach out to the authors or any of the attorneys in Arnold & Porter’s Antitrust/Competition or White Collar Defense & Investigations groups.

© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.