us dojWhen a Colorado federal judge denied the defense's motion to dismiss at the very outset of the case the US Department of Justice's criminal action alleging violations of antitrust laws by rival companies in the dialysis sector for their use of restrictive covenants in USA v. DaVita Inc. et al., the DOJ took a victory lap, claiming the decision marked a turning point, and struck a blow for workers against corporate greed.

But at the end of the day, or in this case, the criminal trial, against the company and its former CEO, which resulted in a blanket not guilty verdict that was handed down by the jury two months ago, it is clear in restrospect that the DOJ's celebration was not only short-lived, but may well have been short-sighted as well.

What Doomed the Prosecution's Criminal Case Arguing that the Employers' Noncompete and Nonsolicit Provisions Should Subject Them to Criminal Liability

Unlike, say, deals involving price-fixing for various consumer products that, on their face might constitute an antitrust violation, the judge in this case made clear that a restrictive covenant, standing alone, would not be viewed in the same light. Rather, Judge Jackson distinguished nonsolicitation agreements from this categorization, and set forth that in order to secure a criminal conviction, the government would 

"[H]ave to prove beyond a reasonable doubt that defendants entered into an agreement with the purpose of allocating the market for senior executives (Count 1) and other employees (Counts 2 and 3)."

In other words, unlike more traditional market allocation cases, where the price fixing alone may be considered an automatic, or in legalese, per se violation of law, the government faced an additional evidentiary hurdle here, because the judge required that beyond the existence of the restrictive covenant, the DOJ was further obligated to prove that the purpose behind the agreements was specifically designed by market competitors to effectuate a joint scheme that prevents senior executives from moving around, and to end meaningful competition in the labor or employment market.

And the facts in this case (apparently) didn't bear that out - at all.

Among other things, at the trial the evidence showed that anyone put forth as a "victim" of these agreements had not, in fact, suffered any measurable harm; to the contrary, those people often ended up in better employment situations based on how the agreements were actually implemented.

The Takeaway(s)

While this was certainly a stinging defeat for the government (and certainly, at least in my view, was the appropriate result), this case highlights how and why employers need to remain wary of a few things, including that the DOJ has made it unequivocally clear that they intend to bring more of these prosecutions, which, even if the cases are ultimately dismissed, threatens to disrupt terribly various businesses and cost them huge sums of money defending the actions.



Jonathan Cooper
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Non-Compete, Trade Secret, Unfair Competition and School Negligence Lawyer
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