When I was a newbie lawyer just out of law school I worked at a Washington D.C. “BigLaw” firm that concentrated on antitrust law. We represented a client in a criminal antitrust case that involved bid rigging in the highway and airport paving industry. It turns out that bid rigging was rampant in the U.S. southeast, leading to many indictments, guilty pleas and convictions.You can read about it in this 1982 court decision.
What is bid rigging? Typically a state highway or transportation agency would issue a request for bids on a highway paving project. Potential bidders would either ask other contractors not to bid or arrange for them to enter a high bid. Although the winning bidder would have the lowest bid, it would be higher than it might have been had all contractors competed for the job.
The bid rigging case my firm handled was a big one – in fact, when our client eventually pled guilty it paid the largest criminal antitrust penalty in U.S. history to date.
However, before our client pled guilty my firm prepared to defend the case at trial, and the partners gave me a research assignment: find cases that will allow us to argue that bid rigging is not “per se” illegal.
For readers without a background in antitrust law here’s context.
Per Se vs. Rule of Reason
When it comes to anticompetitive conduct that falls under the Sherman Act there are two broad doctrines – “per se” illegality and the “rule of reason.” If the conduct in question falls under the per se rule the act constitutes an unreasonable restraint of trade, and it’s not necessary to consider motive or the economic effects. Under the per se rule an offender can’t justify its conduct by arguing (for example) that it had no anticompetitive effect. The classic example of this is price fixing – if a judge or jury concludes that two or more competitors got together and agreed to raise their prices they are guilty. Period and end of case.
By contrast, under the “rule of reason” a defendant can argue that although it may have engaged in conduct that is potentially anti-competitive, the pro-competitive effects outweighed the anticompetitive effects, and therefore the antitrust laws were not violated.
The judge decides whether a case is governed by the per se rule or the rule of reason. Therefore, antitrust defendants will often argue that the rule of reason should govern their case, and this was the rationale behind my assignment. The BigLaw partners running my case wanted to argue that our client’s bid rigging should be judged under the rule of reason.
It was apparent to the lawyers at my firm (at least the associates working with me) that this was a horizontal price fixing conspiracy, and therefore illegal “per se.” In fact, there were cases that held just that. “A conspiracy to submit collusive, non-competitive, rigged bids is a per se violation of the statute” United States v. Brighton Bldg. & Maintenance Co. (7th Circuit 1979). (link)
No surprise – my research found nothing to the contrary. I spent days in the library reading antitrust cases, hoping to find even a few words that might give us a toehold to argue that our client’s bid-rigging conduct should be judged under the rule of reason. I returned to the partners empty handed.
Is Wage-Fixing Judged Under the Rule of Reason or the Per Se Rule?
What brings this to mind today? – A federal court decision holding that wage-fixing is a per se violation. The case, United States v. Jindal, is the first criminal wage-fixing case brought by the Department of Justice. The federal indictment was returned in December 2020, and the decision that caught my attention was filed in December 2021.
The facts are straightforward – two individuals that owned physical therapy companies agreed to lower the pay rates for physical therapists and PT assistants. They were discovered and the Department of Justice (DOJ) Antitrust Division brought a criminal antitrust case against them.
Although the Jindal case was the first criminal indictment for wage-fixing a second case was filed in March 2021. (United States v. Hee) It’s clear that the labor markets are, for the first time, the focus of the criminal arm of the Antitrust Division.
This comes with plenty of advance notice. In 2016 the DOJ and Federal Trade Commission (FTC) warned that wage-fixing agreements would be prosecuted criminally. President Biden’s July 2021 Executive Order focused on antitrust enforcement in labor markets. In early December the new Assistant Attorney General in charge of the DOJ Antitrust Division noted that many of the economic problems faced by workers have their “roots in collusion and unfair practices in the labor markets,” and warned that the DOJ Antitrust Division will be working closely with the FTC on issues relating to competition in the labor market. (link)
When I read the court’s November 2021 decision in Jindal I saw – shades of my long-ago bid rigging research! – that the defendants argued that wage-fixing is not per se illegal but should be judged under the rule of reason. Likely, a junior associate on the case was sent to the law books to find a precedent that might move wage-fixing from “per se” to “rule of reason.”
No such luck.
Jindal’s Arguments for Rule of Reason Strike Out
First, the defendants argued that wage-fixing is not the same as price-fixing and therefore does not constitute a per se violation. The court rejected this argument, noting that courts have held that a price-fixing conspiracy can pertain to services and price-fixing conspiracies among buyers (in this case employers who buy the services of employees), not just sellers.
Second, the defendants argued that the charges were insufficient because they failed to allege that the defendants had agreed to fix prices paid by consumers. The court rejected this argument, observing that it is well established that the Sherman Act “does not confine its protection to consumers,” but also protects employees.
Third, the defendants argued that courts lacked sufficient experience with wage-fixing to justify classifying it as a per se violation. The court rejected this argument – “The 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.”
Bottom line: pending appeal and reversal, wage-fixing is a type of price-fixing—and price-fixing is the quintessential per se violation of the Sherman Act. Given the evidence in the case (inculpatory text messages) it looks like Mr. Jindal and his co-defendant should be getting their affairs in order in advance of a prison term.
DOJ Focuses on “No-Poach” Agreements
The broader takeaway for business executives is that while historically the DOJ treated no-poach agreements as civil antitrust violations, criminal prosecutions can lead to felony indictments and prison time. They also need to be aware that the DOJ Antitrust Division is looking beyond just wage-fixing – it has an eye out for “employee allocation agreements” – commonly referred to as “no-poach” or “no-hire” agreements. Under these agreements two or more employers agree that “I won’t hire your employees if you’ll agree you won’t hire mine.” The Antitrust Division is likely to argue that these agreements also are a per se antitrust violation. The DOJ filed an indictment against Surgical Care Affiliates LLC in January 2021 alleging an illegal no-poaching/no-hire agreement (link), and a second no-poach case against aerospace executives as recently as December 16, 2021, while I was writing this post. (link)
Oh, and by the way the associates in the firms defending the no-poach indictments better head for the library and start looking for cases that will persuade the judges that no-poach/no-hire agreements should be judged under the rule of reason.
Perhaps they’ll have better luck than I did.
(To read a 2012 post discussing no-poach/no-hire civil cases (not to be confused with the criminal indictments discussed above) see Repeat After Me: Competitors Cannot Agree Not to Hire Each Others Employees.)
Update: The defendants were acquitted in both cases following jury trials.