DOJ Encourages Nevada State Court to Stop Non-Compete Agreements

The Antitrust Division under the U.S. Department of Justice (DOJ) recently filed a statement of interest directed towards a case in a Nevada state court in order to stop non-compete agreements between a medical group and its employees. Indeed, such non-compete agreements are regulated by state law. However federal agencies may file statements of interest within state trials. The agency’s decision follows the DOJ’s recent focus on federal non-compete enforcement. Previously, the DOJ announced a plan to combat heightened cyber threats within the cryptocurrency market.

Background of the Nevada State Court Case

In Samuel Beck, et al. v. Pickert Medical Group, P.C., et al., anesthesiologists and other employees of the defendant, Pickert Medical Group, were subject to a non-compete agreement. Pickert Medical Group supplies anesthesiologists for the Northern Nevada Renown Regional Medical Center. In brief, the two-year non-compete agreement prevented the employees from providing their services. Specifically, they could not provide anesthesiology services within 25 miles of the medical center. They could also not provide services within 25 miles of other facilities where the employees worked while they were employed under the group. Subsequently, the employees sued in Nevada state court to stop non-compete agreements in their contracts.

DOJ Statement of Interest to Stop Non-Compete Agreements

Within their statement of interest, the DOJ cited federal antitrust laws and prohibitions on trade restraints under the Sherman Anti-Trust Act. Overall, the DOJ argued that non-compete provisions within the contracts were “horizontal restraints.” In other words, the restraints represented agreements specifically between competing health care providers, rather than “per se” antitrust violations. However, the DOJ did make an exception if the defendant could show that the non-compete provisions could promote competition.  In that case, the provisions would be subject to a less stringent “rule of reason” under the Sherman Anti-Trust Act.

The DOJ’s Reasoning Under the Statement of Interest

The DOJ centered its arguments on its “horizontal restraints” theory. To that end, the DOJ noted key points about the employees’ qualifications and clauses within their contracts. Specifically, the DOJ argued that:

• the individual employees were board-certified and licensed for their practice when they signed their contracts, and
• specific non-compete clauses in their contracts stated the employer had a “legitimate interest in protection from competition” by the employee.

Additional Arguments

Additionally, the DOJ suggested that the non-compete provisions in question were agreements between competitors and the defendant to allocate a 25-mile radius around the Renown Regional Medical Center to the defendant. In other words, the agreement's language suggested that they were about protecting the defendant from competition from employees. Furthermore, the DOJ continued to question any “rule of reason” defense. They argued the defense would not hold up if the non-compete restraints were not “reasonably necessary” in regards to the purpose of the defendant’s employment agreements. In any case, the DOJ stated that “rule of reason” would still not apply in this case, as the agreements’ anti-competition effects outweighed any pro-competition reasoning. In conclusion, the DOJ’s statement of interest relied on empirical evidence in its efforts to stop non-compete agreements in employment contracts.