DOJ Defeats Motion to Dismiss in Precedent-Setting Criminal Wage-Fixing Case

On November 29, 2021, Judge Amos L. Mazzant III of the United States District Court in the Eastern District of Texas denied a motion to dismiss the government’s first ever criminal indictment for alleged wage-fixing. The court rejected three primary arguments made by Neeraj Jindal, the owner of a therapist staffing company, and John Rodgers, the clinical director of the company. First, the court found that the indictment—which alleged a wage-fixing conspiracy—had adequately alleged a per se violation of the Sherman Act. Second, it determined that the defendants had “fair warning” that their alleged actions were illegal, so that their Constitutional rights were not violated by a prosecution. Finally, it determined that the per se standard does not unconstitutionally strip the jury of the ability to judge intent. The court’s decision supports the Department of Justice’s (DOJ’s) recent efforts to identify and prosecute collusion in labor markets and will likely further embolden the Antitrust Division of the DOJ to continue seeking criminal indictments in this context.

The Case Against Jindal and Rodgers

The DOJ has accused Jindal and Rodgers of violating Section 1 of the Sherman Act by engaging in a scheme to fix the wages paid to physical therapists (PTs) and physical therapist assistants (PTAs) in the Dallas-Fort Worth area in 2017.

Jindal’s company contracted with PTs and PTAs to place them with in-home patients. The company acted as a middleman staffing the PTs and PTAs based on patient referrals it received from home health agencies and paid the PTs and PTAs a set rate for their services. The indictment alleges that, beginning in March 2017, Jindal and Rodgers texted the owners of several therapist staffing companies to recruit competitors to join a conspiracy to lower the rates paid to PTs and PTAs. In a text sent separately to four different owners of therapist staffing companies on March 10, 2017, Jindal stated, “I am reaching out to my counterparts about lowering PTA rates to $45. What are your thoughts if we all collectively do it together?”

Jindal and Rodgers raised three primary arguments in their motion to dismiss.¹ First, the defendants claimed that the DOJ had failed to properly state a criminal offense because it did not allege a per se Sherman Act violation. While most restraints under Section 1 of the Sherman Act are analyzed under the rule of reason, requiring a context-specific inquiry, the Supreme Court has held that certain agreements are “so plainly anticompetitive that no elaborate study of the industry is needed to establish their illegality” such that they are per se illegal. The court noted that DOJ policy is to charge criminal cases only for per se violations of the Sherman Act. Jindal and Rodgers argued that because wage-fixing is not a per se violation of the Sherman Act, the government has failed to state a criminal offense.²

The defendants’ argument acknowledged that the Supreme Court has long accepted that price-fixing is a per se violation of the Sherman Act, but attempted to distinguish wage-fixing from price-fixing. They argued price-fixing involves the “price of a commodity,” and wages fall outside of that definition. The court rejected the defendants’ “narrow” view of what constitutes price-fixing, noting that price-fixing takes many forms and the Supreme Court has made clear the Sherman Act applies equally to buyer-side collusion as it does to supplier-side collusion. For example, the opinion cited Supreme Court precedent condemning buyer-side collusion in labor markets ranging from a 1926 case about shipowners fixing the wages paid to seamen to Justice Kavanaugh’s 2021 concurrence in Alston regarding pay for college athletes. According to Justice Kavanaugh: “Price-fixing labor is price-fixing labor. And price-fixing labor is ordinarily a textbook antitrust problem because it extinguishes the free market in which individuals can otherwise obtain fair compensation for their work.” Relying on these types of precedents, the Court found that wage fixing is a form of price fixing and held the DOJ had properly alleged a per se violation of the Sherman Act.

Defendants also argued that they did not have “fair warning” their acts could lead to criminal charges, thus violating their Fifth Amendment rights. The argument relied largely on the fact that no court had previously found wage fixing to be a criminal violation, and neither the Supreme Court nor any appellate court had found wage-fixing specifically to be a per se Sherman Act violation. Reiterating its prior analysis that wage-fixing is a per se violation, the court also rejected defendants’ fair notice argument. In the court’s view, defendants’ “unlucky status” as the first two individuals criminally indicted for wage fixing did not mean they lacked fair notice. Even if it accepted the claim that wage-fixing was not literally price-fixing, the court found defendants still had notice that their conduct was “perilously close” to a line that could lead to criminal indictment.

Finally, Jindal and Rodgers argued that the per se standard violated their Sixth Amendment rights because it would unconstitutionally take away from the jury the question of defendants’ intent. The court dispatched this argument, finding that the same claim was made, and rejected, in the 5^th Circuit in Cargo Serv. Stations, Inc.³ There, the court found that an intent to fix prices equates to an intent to restrain competition, providing the necessary criminal intent required under the Constitution.

The DOJ’s Focus on Labor Markets

The Jindal/Rogers case is an important milestone as the DOJ seeks to ramp up enforcement against alleged antitrust violations in labor markets. Non-solicitation or “no-poach” agreements regarding employee recruiting first attracted widespread attention in 2010 when a number of the largest Silicon Valley technology companies entered into consent agreements with DOJ for a series of “no cold call” agreements.⁴ While the DOJ settlements did not impose any criminal or monetary penalties, follow on class action suits settled for $435 million.⁵ In October 2016, the DOJ and FTC released their Antitrust Guidance for Human Resource Professionals. The document stated the DOJ’s intention to bring criminal charges against individuals and companies who engaged in “naked” wage-fixing or no-poach agreements.⁶ While the DOJ had treated these agreements as civil violations in the past, it noted that these agreements “eliminate competition in the same irredeemable ways” as traditional hardcore cartel conduct, in explaining its new criminal approach.

In subsequent public statements, the Antitrust Division continued to emphasize its focus on alleged collusion between employers in labor markets. For example, in January 2018, then AAG Makan Delrahim remarked he was “shocked” at the number of no-poach agreements DOJ had uncovered,⁷ and in October 2019, Doha Mekki, then Counsel to the AAG, testified before Congress about the harms to competition in the labor market and the DOJ’s response.⁸ While the DOJ did settle a case against Knorr and Wabtec in April 2018 alleging no-poach agreements in the rail equipment supplies industry, it pursued the case as a civil, rather than criminal, matter. It explained that “in a matter of prosecutorial discretion, the department will pursue as civil violations no-poach agreements that were formed and terminated before” the 2016 guidance.⁹  Notably, DOJ investigations and settlements in this area have often given rise to private antitrust cases brought on behalf of putative classes of affected employees.

The emphasis on antitrust policy as applied to labor markets has continued during the Biden Administration, including not only continued pursuit of alleged horizontal agreements on wages and hiring, but also a mandate in the President’s July 2021 “Executive Order on Promoting Competition in the American Economy,” among other things, requesting the Federal Trade Commission Chair to consider using the Commission’s statutory rulemaking authority to curtail the use of non-compete clauses and other agreements that limit worker mobility and to address other practices that may tend to inhibit competition, such as unfair occupational licensing restrictions and supposedly improper data collection and surveillance practices.¹⁰

The Jindal indictment in December 2020 was the first criminal antitrust charge targeting labor markets, but it was quickly followed by others. In addition to the related charges against Rodgers, the indictment was followed up by cases targeting alleged no-poach agreements, another category of emphasis by the DOJ, as well as another wage-fixing indictment. For example, in January 2021, the DOJ brought a case against Surgical Care Affiliates (SCA). The DOJ alleged the operator of outpatient medical care centers across the country agreed with two competitors not to solicit each other’s senior-level employees.¹¹ Similarly, in March, a federal grand jury in Las Vegas indicted VDA OC LLC, a health care staffing company, and its former manager on charges that they entered into and engaged in a conspiracy with a competitor to fix the wages of employee nurses and avoid hiring each other’s employees.¹² As of this writing, motions to dismiss the criminal charges against defendants in the SCA and VDA cases remain pending.

Conclusion

These cases are only the first arising from the DOJ’s increased interest in antitrust enforcement in labor markets. The court’s decision upholding criminal charges for wage fixing likely will embolden the government to continue to aggressively investigate and seek indictments in instances of alleged collusion in hiring, recruiting and wage-setting. Importantly, while the decision provided a detailed analysis of wage-fixing as a per se violation of the Sherman Act, the pending criminal cases involving alleged no-poach or non-solicitation agreements are less clearly comparable to price-fixing, and it remains to be seen whether courts will adopt the same reasoning regarding those types of agreements.¹³ Nonetheless, the decision is a win for the DOJ and should remind employers that the DOJ is prepared and willing to prosecute naked wage-fixing and no-poach agreements criminally.

© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This Advisory 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.