Groundbreaking antitrust trial over DaVita's alleged hiring practices could set new precedent

A closely watched criminal conspiracy trial involving dialysis provider DaVita and its former CEO Kent Thiry, which began this week, could have far-reaching implications for how businesses hire talent from one another.

A federal grand jury originally indicted Denver-based DaVita and its ex-CEO on three counts of conspiring with competing employers not to hire one another's senior-level employees. DaVita and Thiry allegedly struck anti-poaching agreements with two other healthcare companies.

The Department of Justice (DOJ) contends that the agreements are anti-competitive and violate the Sherman Antitrust Act. It's the first-ever criminal trial for labor-related antitrust violations.

"It's a new application of a very old law," Ann O’Brien, a partner at Baker & Hostetler and former DOJ antitrust division manager and prosecutor, told Fierce Healthcare. The Sherman Antitrust Act dates back to 1890 and is a federal statute prohibiting activities that restrict interstate commerce and competition in the marketplace.

"Everything that is happening in that courtroom has never happened before under these set of facts in an antitrust criminal case," O'Brien said.

The outcome of the trial and the judge's instructions to the jury could set a precedent for how businesses use talent agreements. The case also tests whether the DOJ can criminally prosecute employers that use no-poach agreements.

The federal judge in the DaVita case, R. Brooke Jackson, told jurors on Monday the case is "a big deal" and said "what you folks do with it is going to be heard in other places," Reuters' Mike Scarcella reported.

DaVita owns and operates outpatient medical centers that focus on dialysis and kidney care. It operates a network of 2,816 kidney dialysis centers in the U.S. and 339 more in 10 countries worldwide.

According to the DOJ, DaVita and Thiry struck an anti-poaching agreement with Surgical Care Affiliates that was designed to prevent each company from recruiting the other's senior-level employees. DaVita had similar no-poaching agreements with Hazel Health and Radiology Partners, the prosecutors allege. All three companies were headed by former DaVita executives, according to media reports.

The charges were the result of an ongoing federal investigation conducted by the antitrust division and the FBI.

The first count charges DaVita and Thiry for conspiring with Surgical Care Affiliates not to solicit each other’s senior-level employees from as early as February 2012 until as late as July 2017. The second count alleges the company and the former executive conspired with another healthcare company from as early as April 2017 until as late as June 2019 to allocate employees by agreeing the other healthcare company would not solicit DaVita’s workers. 

"These charges show a disturbing pattern of behavior among health care company executives to conspire to limit the opportunities of workers,” said Assistant Director in Charge Steven M. D’Antuono of the FBI’s Washington Field Office in a statement issued last July when the indictments came down. “The FBI is dedicated to working with our partners to hold those accountable who would engage in labor market collusion to the detriment of their employees.”

If convicted, DaVita faces a maximum penalty of a $100 million fine per count, and Thiry faces a maximum penalty of 10 years in prison and a $1 million fine per count. 

Thiry's defense lawyers at King & Spalding have called the charges an "unjust" overreach by prosecutors.

In an interview with Fierce Healthcare last month, DaVita CEO Javier Rodriguez said the charges are an "untested application of the law."

"The case alleges that a former executive, our former CEO [Kent Thiry] in this case, agreed not to hire senior leaders many years ago. Now, the case is [about] friends—it’s not like he was going out into the marketplace and talking about it," Rodriguez said.

"We are a highly, highly ethical company and personally … when you have something like this in the backdrop, you really hope people give you the benefit of the doubt and let the facts play out and come to its conclusion. I’m confident they’ll agree with us that this application of the law does not work. We’re confident in that," he told Fierce Healthcare.

Attorneys focus on intent

Prosecutors argued during opening statements Monday that Thiry and DaVita’s agreements were criminal and stymied competition, limiting DaVita employees’ ability to land new jobs and advance their careers, the Denver Post's Shelly Bradbury reported. Defense attorneys admitted the agreements existed but said they were not illegal, did not limit the free market and in some cases increased competitive opportunities for DaVita employees.

Prosecutors portrayed Thiry as a corporate-minded CEO who wanted control over his employees and tried to restrict their mobility. According to Bradbury's reporting, Megan Lewis, a prosecutor with the U.S. DOJ’s antitrust division, told the jury that Thiry had “an obsessive focus” on keeping employees at DaVita and found it “personally embarrassing” when senior-level employees left DaVita to work for competitors.

Thiry "called himself the mayor of The Village, and he demanded loyalty to The Village,” Lewis said at trial, the Post reported.

DaVita's lawyers acknowledged that the company had set up the three agreements to avoid soliciting staff from one another. But they argued the agreements were legitimate business transactions and didn’t constitute illegal market allocation, the Post reported.

The Biden administration has vowed to put a greater focus on competition in labor markets, and the DOJ has been ratcheting up its enforcement in the no-poach arena. Since DaVita was indicted, the DOJ has filed five additional no-poach cases.

The defense counsel argued that there were pro-competitive reasons for the agreements, O'Brien said.

An agreed-upon rule that DaVita employees had to tell their supervisors they were looking for a new job before they could be recruited by competitors actually increased opportunities for the workers because it prompted DaVita to offer raises and promotions in order to keep the employees from leaving, John Dodds, an attorney for DaVita, argued in court, according to media reports. 

The current trial could have effects far beyond DaVita and Thiry.

"It's very important to the bar and the business community following this, as far as what the rulings of the judge are and what the outcomes are," said O'Brien, who was present in the courtroom for the first week of the trial. "There could really be some very difficult precedent-setting bad law and bad jury instructions for the Department of Justice to come from this."

That said, "[t]his is going to take years to play out," O'Brien said, noting that a potential conviction would be subject to appeal.

Companies need to look closely at their antitrust compliance programs and policies related to training and talent acquisition, O'Brien said.

"Companies need to look at their existing non-compete clauses in their contracts," for one thing, O'Brien said.

Managers also need to be circumspect when talking to competitors about recruiting, she said.

"That's one big takeaway: Be very careful talking with competitors about anything that would relate to hiring, wages or labor decisions to avoid suspicions that you have engaged in a collusive agreement or conspiracy to not poach each other's employees and restrict the movement of employees."