New Risks of "No-Poach" Agreements in the Healthcare Industry?
Authors: Lisl Dunlop, Partner, Litigation | Carri Maas, Associate, Litigation
"No-poach" agreements, under which employers agree not to steal each other's employees, have long been a feature of industries in which key talent is in short supply. But such agreements can restrict competition in employment markets by restricting employee movement and limiting the compensation of employees who might otherwise be attracted to work for a competitor. Accordingly, "no-poach" agreements can violate antitrust prohibitions against agreements that restrict competition, and result in high penalties.
In 2010, the U.S. Department of Justice (DOJ) brought civil claims against several prominent tech companies for agreements to refrain from poaching each other's employees. After the tech companies settled the lawsuit with the DOJ, several class actions were filed by the tech companies' employees seeking compensation for harm resulting from the no-poach agreements, which were recently settled for $415 million.1
"No-Poach" Agreements Increasing in Healthcare
Although antitrust litigation concerning no-poach agreements came to prominence in the tech sector, two recent matters highlight that agreements among competitors which serve to stifle competition for employees may be on the rise in the healthcare industry.
In one recent case, Detroit Medical Center agreed to pay $42 million to settle claims that it conspired with other healthcare providers to depress compensation of Registered Nurses (RNs) in Southeast Michigan.2 Prior to this latest settlement, the court also approved over $48 million in settlements relating to seven other defendant hospitals.
The class action complaint in this matter alleges that the defendants, who own and operate hospitals in the Detroit area, agreed among themselves and with other hospitals in the area to regularly exchange detailed and non-public information about compensation of their RN employees through meetings, telephone conversations and written surveys. The complaint alleges that this exchange of information suppressed competition among Detroit-area hospitals in the compensation of RN employees and depressed compensation paid.
In addition, the hospitals allegedly agreed to recruit RNs jointly at job fairs and elsewhere to avoid competing to attract RNs to their respective hospitals. The complaint highlights that the alleged conspiracy has occurred amidst a national nursing shortage, and alleges that absent the conspiracy, Detroit-area hospitals would have responded to the shortage by increasing compensation. Instead, the complaint alleges that despite years of high vacancy rates, compensation for RNs has remained unexpectedly low and stagnant.
Even more recently, a class action was filed against Duke University, the University of North Carolina (UNC), and their respective health systems, alleging that they conspired to suppress the compensation of their employees by entering into agreements to not "poach" certain medical facility faculty and staff from each other.3 The complaint alleges that the deans of Duke and UNC had entered into an agreement not to recruit each other's faculty and medical staff after Duke tried to recruit UNC's entire bone marrow transplant team, resulting in UNC paying a large retention package in order to keep the team from moving.
The complaint alleges that due to the alleged agreement, and compounded by the fact that Duke and UNC are the dominant and preeminent employers of skilled medical labor in North Carolina, doctors have been effectively foreclosed from seeking alternative employment. Further, the agreement has allegedly fixed compensation of medical faculty and staff at artificially low levels. The case is currently pending in the United States District Court, Middle District of North Carolina.
Historically, the healthcare industry has not been the focus of litigation concerning agreements not to solicit or recruit employees. However, as healthcare and hospital mergers continue, and the number of employers in a geographic market decreases, competition for highly trained employees may intensify, driving up salaries and costs. The recent cases are a good reminder that healthcare employers should avoid discussions about employees with other providers in a region that may have the effect of limiting competition for employees. The recent cases also raise the possibility that use of "no-poach" agreements in healthcare contexts may carry new, potential litigation-related risks.
1See In re High-Tech Employee Antitrust Litigation, Northern District of California, Case No. 11-VC-2509-LHK.
2See Cason-Merenda et al. v. VHS of Michigan, Inc., d/b/a/ Detroit Medical Center et al., Case No. 06-15601 (E.D. Mich.).
3Danielle Seaman v. Duke University; Duke University Health System, et al., Case No. 1:15-cv-462 (M.D.N.C.).
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