December 18, 2020Client Alert

First Criminal Indictment for Wage Fixing – A Wake Up Call for All Employers

In October of 2016, the United States Department of Justice’s Antitrust Division, in coordination with the Federal Trade Commission, released joint policy guidance to alert the human resource industry and others involved in hiring and compensation decisions of the application of antitrust laws to such activities. At the core of that guidance was the proclamation that federal antitrust laws apply to competition to hire and retain the nation’s employees in similar fashion to competition regarding goods and services. Free and open competition should exist between employers for employees, which will help employees achieve higher wages, better benefits, and other favorable terms of employment.

This joint federal agency guidance made it clear that two types of agreements between employers affecting employee wages are per se illegal and can give rise to criminal antitrust liability. Those illegal agreements included wage fixing agreements, where companies reached agreements to fix or otherwise not compete for employees on salary, wages or other benefits, and “no poach” agreements where companies agreed to refrain from soliciting or hiring the other company’s employees.

Since the release of that policy guidance, the U.S. Department of Justice has brought enforcement actions for this type of behavior in the civil arena collecting fines and enjoining the employers’ bad behavior. This changed on December 9, 2020. Significantly, the United States Department of Justice Antitrust Division announced its first criminal indictment in U.S. v. Jindal in the United States District Court for the Eastern District of Texas in a first of its kind prosecution.

The Indictment alleges that the defendant, Neeraj Jindal (Jindal), was the owner of a therapist staffing company. Jindal’s company contracted with physical therapists (PTs) and physical therapist assistants (PTAs) to provide in-home physical therapy services to patients. The PTs and PTAs were then paid set rates for providing in-home care visits. The company’s income was based on the difference between what it paid to the PTs and PTAs as compared to what the company charged in-home care patients for the physical therapy services.

Jindal allegedly reached out to at least five other individuals employed at other companies in the same industry in an attempt to get an agreement between the five companies to collectively lower wage rates paid to the PTs and PTAs. Specifically, Jindal proposed to reduce rates for PTAs down to $45 per visit and reduce rates for PTs down to $60 per visit in order to increase the company’s profit margins. At least one of these companies allegedly agreed to the lower rates and did so at the same time as Jindal’s company. All of these individuals and companies are listed in the Indictment as “co-conspirators” in this alleged price fixing scheme, in violation of 15 U.S.C. § 1.

U.S. Department of Justice Antitrust Division Assistant Attorney General Makan Delrahim announced the Indictment and declared:  “Employers who conspire to fix the wages of workers or restrict their mobility by allocating labor markets will be prosecuted to the full extent of the law.”  Thus, such activities and agreements between employers will be a priority for scrutiny and potential criminal enforcement in various labor markets around the country.

Although there are many takeaways from this historic Indictment, most salient is to recognize that the activities of a company’s human resource department, and not just the activities of its manufacturing or supply operations, are subject to compliance with U.S. antitrust laws. Company compliance programs must include information geared to their human resource function that specifically prohibit wage fixing and no-poach agreements between competing employers. Secondly, as shown by the facts of the allegations in the Indictment, the Department of Justice and FTC chose to bring its first Indictment in this area against a staffing agency, the labor industry itself, for engaging in this type of prohibited conduct. Thus, those businesses operating in that industry need to be vigilant in tailoring their compliance programs moving forward.

Please contact your Michael Best attorney with any questions.

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