4th Circuit revives naval engineers’ no-poach wage suppression suit

SUMMARY

• 4th Circuit reinstated class action over alleged no-poach agreement among shipbuilders and consultants
• Plaintiffs accused defendants of suppressing wages by avoiding written agreements
• Court held oral and coded arrangements can constitute fraudulent concealment
• Claims allowed after plaintiffs alleged concealment and due diligence discovery in 2023

The 4th U.S. Circuit Court of Appeals reinstated a putative class action by former naval engineers who accused the nation’s largest shipbuilders and engineering consultancies of orchestrating a long-running “no-poach” agreement designed to suppress employee wages. The plaintiffs alleged that the defendants agreed not to recruit each other’s workers and deliberately avoided putting the arrangement in writing, transmitting it orally and through coded references to evade detection.

The 37-page opinion is Scharpf v. General Dynamics Corp.

The U.S. District Court for the Eastern District of Virginia dismissed the suit as untimely under the Sherman Act‘s four-year statute of limitations, reasoning that the absence of written evidence could not constitute fraudulent concealment. On appeal, the 4th Circuit disagreed, holding that an agreement intentionally kept “non-ink-to-paper” qualifies as an affirmative act of concealment because it is deliberately structured to prevent discovery of unlawful conduct.

The court emphasized that to toll a limitations period, plaintiffs must allege defendants concealed the basis of their claims and that plaintiffs failed to uncover the scheme despite exercising due diligence. The panel concluded that the plaintiffs met this standard at the pleading stage. Their allegations included affirmative acts of concealment, such as avoiding documentation and using coded language, supported by interviews with industry insiders. Further, the plaintiffs plausibly alleged they could not have discovered the conspiracy earlier, as they believed they were competitively compensated and had no reason to suspect coordinated no-poach practices until insiders revealed the conduct in 2023.

Rejecting the defendants’ argument that concealing a conspiracy by never writing it down could not constitute fraudulent concealment, the court noted that allowing such a loophole would encourage conspirators to avoid accountability simply by refusing to create paper trails. Because the plaintiffs adequately alleged both fraudulent concealment and due diligence, their claims were not time-barred.

EXTERNAL LINKS

• Overview of the FTC’s rulemaking and investigate authority
• U.S. Court of Appeals for the Fourth Circuit Opinions
• U.S. District Court for the Eastern District of Virginia