Prominent Services Contractors Ensnared in No-Poach Class Action
By Lindsey Vaala, Zach Terwilliger, and Craig Seebald
For many federal government contractors, their skilled and experienced workforce may be their most valuable asset. A recent “ice breaker” settlement of a class action lawsuit, however, demonstrates the wrong way to protect that asset. The settlement underscores the significant difference between permissible no-hire and non-solicitation provisions that are ubiquitous in teaming agreements and subcontracts, on the one hand, and illegal “no poach” agreements that may violate the antitrust laws, on the other. No-poach cases and enforcement actions are on the rise, and this most recent settlement provides a helpful example of practices that can lead to substantial litigation risk. The settlement is also a good illustration of how poorly conceived emails can provide enforcement authorities and plaintiffs with ammunition to aggressively pursue their claims.
A proposed class of current and former employees alleges that prominent government contractors Booz Allen Hamilton, Inc. (“Booz Allen”), Mission Essential Personnel, LLC (“Mission Essential”), and CACI International Inc. (“CACI”) entered into an illegal agreement not to recruit or hire one another’s employees working on certain contracts to provide intelligence services to the U.S. Government at a former Royal Air Force base in Molesworth, England (“JAC Molesworth”). The Plaintiffs’ lawsuit seeks treble or triple damages and injunctive relief, and is brought on behalf of a proposed class of all persons employed by CACI, Mission Essential, or Booz Allen at JAC Molesworth, beginning January 1, 2015 through the present. A federal court in Ohio refused to dismiss the allegations and the Plaintiffs have filed a motion asking the court to certify the proposed class of plaintiffs. The latest development in this ongoing litigation is that CACI recently agreed to settle with the Plaintiffs, leaving Booz Allen and Mission Essential to continue to defend themselves against the Plaintiffs’ antitrust claims.
According to the Complaint, before entering into the alleged agreement, the three Defendant contractors competed with one another to attract qualified workers to provide intelligence services funded by the U.S. Defense Intelligence Agency (“DIA”) and Department of Defense (“DOD”) at JAC Molesworth. Each of the three contractors purportedly held multi-year Indefinite Duration/Indefinite Quantity (“IDIQ”) contracts to provide intelligence services and support under the U.S. Government’s Solutions for Intelligence Analysis II program, which authorizes up to $5.6 billion in defense intelligence spending.1 The IDIQ contracts enabled the contractors to bid on specific task orders and requests for proposals to provide certain services and products required to execute the Solutions for Intelligence Analysis II program.2 Consequently, the employees working on the particular task orders awarded to each of the three Defendants often worked side-by-side to provide similar or related services. Plaintiffs allege that, in this environment, the risk that one contractor might hire — or “poach” — another contractor’s employees already working at JAC Molesworth was particularly attractive because the employee is already resident at the non-U.S. location and, thus, hiring that employee means the new employer will not have to pay relocation expenses for the employee to move from the U.S. to England.
In addition, Plaintiffs allege that employees providing intelligence services at JAC Molesworth were required to be U.S. citizens and to have top-secret security clearances, which are expensive, administratively burdensome, and time-consuming to obtain and maintain. Thus, the pool of possible candidates was limited, and competition between the three Defendants to recruit and retain these specific contractors led to increased salary and other employment costs. Plaintiffs allege that in order to minimize these costs, Booz Allen, CACI, and Mission Essential agreed not to recruit or hire one another’s employees working on contracts for intelligence services at JAC Molesworth. Such agreements, often referred to as “no-poach agreements,” have been a significant focus of recent antitrust litigation – both by the federal competition authorities and in private litigation.
The Complaint includes detailed and specific allegations regarding the purported agreement and directly quotes from email communications sent by Defendants’ representatives to employees impacted by the alleged no-poach agreements. For example, the allegations claim that in August 2018, Booz Allen invited Mission Essential employees to a job fair at JAC Molesworth. The Complaint specifically quotes from a Mission Essential supervisor’s email to his employees regarding the job fair, writing “DO NOT go. The no poaching agreement is still in place so they are not allowed to talk to you.”3 Additionally, named Plaintiffs Sarah Hunter and David Youtz, both former Mission Essential employees, allege that they applied for and were denied new jobs with Booz Allen and CACI, and were informed, either verbally or via email, that they were not hired because of no-poach agreements in place between the three companies.4
CACI’s Icebreaker Settlement
On September 17, 2021, the Plaintiffs filed a motion announcing a settlement with CACI. Under the terms of the settlement, CACI will pay $200,000 to resolve all claims against it. The proposed Settlement Class is all persons employed by the Defendants at JAC Molesworth from January 1, 2015 through June 1, 2021, which is the date the settlement agreement was executed. The motion does not reveal how the parties calculated the $200,000 settlement amount and states that the settlement was reached through mediation with a court-appointed mediator. As the likely “icebreaker settlement” – i.e., the first settlement in the litigation – CACI’s settlement amount is likely much lower than what Plaintiffs will be willing to settle with Booz Allen or Mission Essential should they too decide to resolve the claims. Indeed, the settlement agreement specifically states that CACI’s settlement does not impact Plaintiffs’ ability to continue to pursue their claims against remaining Defendants, Booz Allen and Mission Essential, who are jointly and severally liable for the alleged damages resulting from the purported agreement.5 In class action litigation, it is common for the first settling defendant to receive the best deal.
Class Certification is Pending
CACI’s settlement comes on the heels of the completion of class certification briefing and the upcoming October hearing date for Plaintiffs’ argument in favor of class certification. The Complaint estimates that there are as many as 300 people in the proposed class.6 A win on class certification would certainly bolster the potency of the Plaintiffs’ case. In contrast, if class certification is denied, the litigation will have to proceed only on behalf of the two named plaintiffs and the scope of potential damages will be significantly reduced. It is not uncommon for plaintiffs’ counsel to withdraw lawsuits following denial of class certification.
In addition to this matter, there has been a proliferation of no-poach class action lawsuits filed in the past couple of years and many in the antitrust bar will be monitoring closely the outcome and underlying reasoning of the Plaintiffs’ class certification motion. A key question is whether the alleged anticompetitive impact and corresponding damages can be reasonably calculated on a class-wide basis or are more individualized. In their opposition to the Motion for Class Certification, the Defendants argue that each company had its own unique compensation structure and that any alleged impact on employees resulting from the purported no-poach agreement cannot be calculated on a class-wide basis, but would instead require individualized determinations that are not appropriate for a class action.
What This Means For You
There is no doubt that no-poach cases and enforcement actions are on the rise. Just in the past year, the Department of Justice’s Antitrust Division has obtained four criminal indictments charging companies and individuals with criminal violations of the antitrust laws for purported no-poach agreements. So far, the public indictments have all been connected to the health care space. However, public disclosures have revealed grand jury no-poach investigations are reportedly underway in a variety of other industries. In 2016, the Antitrust Division and the Federal Trade Commission jointly announced that the criminal prosecution of no-poach conduct would be a top enforcement priority going forward. Approximately four years later in 2020, that prioritization seems to be coming to fruition in the form of multiple criminal no-poach cases and investigations. Further, the Biden Administration’s recent Executive Order on Promoting Competition in the American Economy doubled down on no-poach agreements and non-compete restrictions as areas of heightened scrutiny and enforcement.
As the emails quoted in the Complaint against CACI, Booz Allen, and Mission Essential illustrate, many companies, individual managers, and supervisors do not realize that no-poach agreements violate the antitrust laws and are illegal. Educating company leadership, human resource professionals, and other employees with hiring and recruiting responsibility is essential to minimizing criminal antitrust exposure and private lawsuits targeting no-poach conduct. Penalties for no-poach violations can be severe. Companies convicted of no-poach crimes may face statutory fines of up to $100 million, and possibly more. Individual employees face imprisonment of up to ten years and $1 million fines. And in the civil and private litigation context, damages for antitrust violations, including no-poach conduct, are subject to trebling and to joint and several liability.
Our team of Antitrust and Government Contract lawyers regularly provide training and counseling to companies looking to educate and inoculate their workforce about the risk of no-poach and other anticompetitive conduct and best practices to minimize pitfalls and exposure. Corporate compliance training and policy revisions are of utmost importance now that the Department of Justice’s Antitrust Division has signaled that it will take compliance efforts into account when deciding whether to charge a company with antitrust crimes.
1 Amended Compl. ⁋ 24.
2 Amended Compl. ⁋ 25.
3 Amended Compl. ⁋ 32.
4 Amended Compl. ⁋⁋ 33-34.
5 CACI Settlement Agreement ⁋ 58.
6 Amended Compl. ⁋ 28.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.