No-Poach Settlements Highlight Antitrust Danger in Hiring

No-Poach Settlements Highlight Antitrust Danger in Hiring Paul Dilakian

The U.S. Department of Justice and the attorney general of California entered into a settlement on May 1 with online marketplace eBay Inc. over an alleged pact with software company Intuit Inc. that neither company would recruit programmers from the other. The settlement was the latest battle in a long antitrust war between Silicon Valley giants and tech employees who claim these companies cheated them out of the chance to compete for better compensation through a series of secret bilateral “no-poaching” agreements.

These antitrust fights involve some of the biggest names in the technology sector—Apple Inc., Intel Inc., Google Inc. and Adobe Systems Inc. settled their versions of a similar suit on April 24 for $324 million—and implicate important issues in antitrust and employment law.

The settlements, which still require court approval, deal with activities dating back to the mid-2000s, when executives at the highest levels of the companies in question began cutting informal deals to stop recruiting each others’ programmers. A Bloomberg Businessweek feature on the antitrust cases revealed the content of some of the emails exchanged between Silicon Valley luminaries, such as the late former Apple CEO Steve Jobs and ex-Google CEO Eric Schmidt, which showed the leaders discussing the bilateral agreements and clearly understanding the legal risks that these agreements entailed. In one email, Schmidt stated: “I don’t want to create a paper trail over which we can be sued later.”

The do-not-hire agreements were certainly meant to be kept private, but Dale Grimes, leader of the antitrust and trade practices group at Bass, Berry & Sims, told that their informality doesn’t have a bearing on their legality under antitrust laws. “That certainly does not keep it from being an ‘agreement’ or ‘combination’ as described in the Sherman Act,” said Grimes.

He also said that although the tech leaders knew their actions were questionable, it’s plausible the companies involved weren’t thinking much about these specific antitrust consequences. Companies, he said, tend to worry about other types of antitrust violations such as price fixing, not talent recruitment practices.

In the wake of these suits though, the appearance and practice of collusion over employment is something business leaders—particularly in highly competitive and specialized fields like tech—might need to think about. At least on the antitrust side, it appears it’s best to keep any recruitment and employment agreements within the bounds of a single company. “The dividing line between what’s going to be genuinely legal and what’s going to be illegal is whether the company does it unilaterally or whether they do it with a competitor,” Grimes said.

Also, don’t copy Schmidt and put any information in an email that wouldn’t pass muster in court. “My advice to clients is that there’s no such thing as a ‘deleted email,’ and it’s all going to come out at some point, as it did here,” Grimes said.

While the settlements and the email correspondence that emerged reveal a rather unflattering side of some of Silicon Valley’s leaders, David Shlansky, managing partner at the Shlansky Law Group, noted that considering the number of workers impacted—the April 24 settlement involved 64,000 tech employees—as well as the massive wealth of the companies involved, the consequences involving a few hundred million dollars have really amounted to a slap on the wrist. “The fact that they got away with it and paid this little money is the truly amazing part of this,” he told, adding that in some ways, the small size of the settlement almost sends the message that the alleged uncompetitive behavior is allowable.

If the tech companies are worried about losing employees to their competitors, there are other routes to take, such as writing restrictive covenants into employment contracts. However, Shlansky pointed out that noncompete clauses are virtually illegal in California and seem to be losing steam elsewhere in the U.S. In Massachusetts, for example, Gov. Deval Patrick is pushing for a new law banning noncompetes in tech, life sciences and other industries. There are also practical barriers to noncompetes, according to Shlansky, such as the need to keep updating these contracts as an employee’s responsibilities evolve.

One potential justification for using a noncompete is an employee’s possession of trade secrets. But Shlansky explained it’s difficult for companies to prove that the average programmer is really a vessel for such important and unique information. “For the vast hordes of tech workers in Silicon Valley, that’s going to be a pretty tough argument to make,” he said.

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