Are You a Hospital or Health Care System with No Poach Agreements?
“No poach agreements” have once again grabbed the legal headlines with a nationally known integrated provider of hospital and physician services a focus of the attention. Allegations of no poach agreements, agreements by competitors not to recruit or hire each other’s employees, led to a federal indictment of health care defendants in Texas in January. Now Geisinger Health and the Evangelical Hospital of Pennsylvania stand accused (though not criminally) of engaging in illegal no poach agreements in two different federal court proceedings. One is a class action brought in February in the name of three registered nurses. The other, is a United States Department of Justice (DOJ) civil antitrust action to enjoin Geisinger's partial acquisition of Evangelical. The acquisition is now the subject of a proposed settlement agreement.
These recent cases reflect a growing sentiment that employers may have gone too far in the restrictions placed upon their employees’ mobility. The Connecticut Business and Industry Association (CBIA), in a December 2020 piece on no poach agreements and non-competes noted that President Biden was then contemplating “significant restrictions, if not outright elimination, of noncompete clauses and no-poaching agreements.” Even if no new laws, regulations or executive orders issue from Washington, there promises to be more efforts under existing law to both litigate and re-calibrate how much restriction employers may impose on employees in the labor market locally and nationally.
The Geisinger-Evangelical restrictions have led the DOJ to require that the two entities, with limited exceptions “not consult with, provide advice to, or seek to influence, directly or indirectly, each other regarding the decision to appoint or employ any Executive Leadership Personnel.” Executive Leadership Personnel are identified to include the positions of: “President, Chief Executive Officer, Chief Financial Officer, Chief Information Officer, Chief Operating Officer, Chief Strategy Officer, Chief Nursing Officer, Chief Human Resources Officer, Controller, Director, Executive Vice President, Vice President, and any other person with any direct or indirect input, influence, or control over any strategic or competitive decision.”
The nurses’ class action seeks damages for, and an injunction against, Geisinger and Evangelical’s alleged agreements not to recruit or poach “physicians, nurses, psychologists, therapists, and other healthcare professionals.” According to their lawsuit, Geisinger and Evangelical entered these unlawful agreements “at the highest levels of their organizations, through secretive verbal exchanges that were later confirmed by emails.” They say “[b]ut for the DOJ's investigation of a proposed acquisition between the Defendants, and the resulting publication of the DOJ Complaint exposing the No-Poach Agreement, the existence of the anticompetitive No-Poach Agreement might have remained permanently hidden.”
To highlight the claimed, anti-competitive effect of no poach agreements, the lawsuit quotes a 2019 DOJ publication which says:
“When companies agree not to hire or recruit one another's employees, they are agreeing not to compete for those employees' labor. Robbing employees of labor market competition deprives them of job opportunities, information, and the ability to use competing offers to negotiate better terms of employment. Under the antitrust laws, the same rules apply when employers compete for talent in labor markets as when they compete to sell goods and services."
No poach agreements have not yet received as much attention in Connecticut, as elsewhere. Though a few years ago, according to The Hour, a Hearst Public Media Services of Connecticut, LLC publication, proceedings by the Washington State Attorney General against eight restaurant franchisors extended negotiated prohibitions on no poach agreements to nearly 100 franchise locations in Connecticut. For the present, Connecticut appears to be more focused on limiting the restrictions imposed by covenants not to compete. The proposed legislation under consideration by the General Assembly appears in the language of Raised Bill No. 906. But, Connecticut competitors who engage in no poach agreements will still do so at their peril, particularly through the Attorney General’s powers under the Connecticut Antitrust Act and Connecticut Unfair Trade Practices Act, as well as civil remedies provided by these statutes to private litigants. The consequences of entering into no poach agreements is real. Companies can be fined, assessed punitive damages and be subjected to substantial injunctive and monitoring orders.
Something that we have said before and that we will continue to repeat is that in an effort to avoid the severe consequences attendant to antitrust violations, business and other organizations should put effective compliance programs in place and regularly monitor their effectiveness. Compliance programs serve as a means to avoid the sort of antitrust transgressions uncovered by the DOJ in its review of the proposed merger between Geisinger and Evangelical and the private class action that often follows upon action by the government enforcers.
For help with compliance and other antitrust issues, you may contact: Michael Kurs, James (Tim) Shearin or Jonathan Orleans at Pullman & Comley or our Compliance and Risk Management Services practice leaders, Collin Baron or Stephen Cowherd.