Industries that buy and sell products and services, such as video equipment, air cargo, or computer software, are the ones most commonly subject to scrutiny under the antitrust laws. The U.S. Department of Justice Antitrust Division’s investigation of high-tech companies’ hiring practices and the recent follow-on civil litigation offer a useful reminder that employment itself falls within the ambit of the antitrust laws as well.

In 2010, the DOJ launched investigations into alleged “no-poach” agreements among well-known high-tech companies—Apple Inc., Lucasfilm Ltd., Adobe Systems, Inc., Google Inc., Pixar, Intel Corporation, and Intuit, Inc. A private class action lawsuit filed last year in federal district court, In re High-Tech Employee Antitrust Litigation (2011), followed shortly after the government’s investigations. Though that case remains in the early stages of litigation, it nevertheless highlights some important practical considerations.

First, companies should be mindful of the antitrust laws when establishing employment policies and practices. Second, In re High-Tech Employee offers a stark reminder that private treble-damage litigation typically follows a government antitrust investigation. Third, the antitrust prohibition against interlocking directorates may provide fodder for the plaintiffs’ bar in certain instances. Note that there is a long history of non-compete provisions in employment agreements, and nothing in the DOJ investigations, consents, or private litigation alters that law or implies that non-competes that are reasonable as to time and geography are themselves inherently anticompetitive. What we are talking about here are not agreements between employers and employees, but agreements between competing employers.

The Alleged Employment Practices Investigated by the DOJ

In September 2010, the DOJ sued Adobe, Apple, Google, Intel, Intuit, and Pixar, challenging agreements that banned the cold calling of others’ employees (United States v. Adobe Systems, Inc. [2010]). The government claimed that the defendants were involved in five bilateral agreements that prohibited one company from directly contacting the employees of another company unless the employee had otherwise applied for a job opening. According to the DOJ, the agreements were facially anticompetitive because they eliminated competition to attract high-tech employees and likely deprived employees of competitive information and access to better job opportunities.

Months later, the DOJ sued Lucasfilm Ltd. (United States v. Lucasfilm Ltd. [2010]). As with the agreements cited in Adobe, Lucasfilm and Pixar purportedly agreed not to cold call each other’s employees. But Lucasfilm and Pixar allegedly went further, agreeing that (i) if one firm made an employment offer to an employee of the other firm, the current employer would be notified; and (ii) when offering employment to the other company’s employee, neither firm would counteroffer above the initial offer. The DOJ viewed this behavior as per se unlawful and even “more pernicious” than the agreements in Adobe.

While denying any wrongdoing, the defendants in both cases settled by agreeing not to enter into or attempt to enter into agreements to refrain from cold calling, recruiting, or competing for employees of other firms.

The Follow-On Private Class Action Litigation

A private class action lawsuit followed the government’s investigations (In re High-Tech Employee). Plaintiffs allege that the defendants—Adobe, Apple, Google, Intel, Intuit, Lucasfilm, and Pixar—conspired to fix and suppress salaried employees’ compensation through the same agreements investigated by the DOJ. They allege that six bilateral agreements were orchestrated by companies that were either under the control of Steve Jobs at the time (Apple and Pixar), or a company that shared a board member with Apple (Google’s CEO, Eric Schmidt, sat on Apple’s board; and Arthur Levinson served on the boards of both Apple and Google).

Defendants have moved to dismiss, arguing in part in their briefs and at the January 26 hearing that the six alleged bilateral agreements would leave companies free to call the employees of the other alleged co-conspirators (e.g., if Adobe-Apple and Pixar-Lucasfilm agreements existed, Adobe was still free to solicit employees from Lucasfilm and vice versa). Defendants argue this renders plaintiffs’ conspiracy theory implausible. The court has not yet ruled.

What is the Antitrust and Employment Law Overlap?

The antitrust laws are not confined to products. Employment practices that affect employee hiring, retention, or compensation can run afoul of the antitrust laws. While Adobe, Lucasfilm, and In re High-Tech Employee are novel in their focus on no-solicitation agreements, other types of employment practices have been subjected to antitrust scrutiny as well.

The antitrust class action complaint filed in Todd v. Exxon Corp. (2001) alleged that oil companies conspired by exchanging detailed compensation information to keep salaries artificially low (but for the conspiracy, the complaint reasoned, the defendant-companies would compete for employees by offering higher salaries). Employees of a company’s subsidiary, which was being spun off, claimed the parent company’s purported agreement not to hire any of the subsidiary’s employees back for a certain period of time was anticompetitive (See Eichorn v. AT&T Corp. [2001]). And in McCabe, Hamilton & Renny, Co. v. Matson Terminals, Inc. (2008), a competitor alleged that the defendant’s alleged predatory hiring was an act in furtherance of a monopoly.

These cases highlight the antitrust considerations underlying business decisions that may appear at first blush to be strictly labor-related. Companies should be mindful of the antitrust laws’ applicability to their actions in the labor marketplace.

The Practical Perils of Private Lawsuits Following Government Investigations

Arguing for dismissal based on pleading insufficiencies can be challenging enough when plaintiffs can bolster their complaint with details cherrypicked from prior DOJ complaints and competitive impact statements, as is the case in In re High-Tech Employee. The defendants in High-Tech Employee face an even steeper uphill battle because, prior to the deadline for plaintiffs’ opposition to the motions to dismiss, the court ordered the production of materials previously produced to the DOJ. The plaintiffs used this discovery to great effect, using seemingly damning quotes from defendants’ own documents to support their position in various submissions (e.g.: “I just got off the phone. . . and we agreed that effective now, we’ll follow a gentleman’s agreement with Apple that is similar to our Lucasfilm agreement.”).

Even while in the throes of a government investigation, it is important to consider the implications of private antitrust litigation that may follow and to recognize that material produced to the government can end up in the hands of private plaintiffs.

Interlocking Directorates

In re High-Tech Employee offers a reminder about the potential hazards of an individual serving on the boards of directors for multiple companies. Section 8 of the Clayton Act prohibits a person from serving as a director or officer of two competing corporations. Companies are competitors for the purposes of this section if the elimination of competition by agreement between them would violate the antitrust laws. This provision applies if each of the corporations has capital, surplus, and undivided profits aggregating $27,784,000 or more (as adjusted for 2012), but has some safe harbors built in based on the competitive sales of the companies in question.

Shared directors can be an issue even in the absence of a Section 8 violation. The plaintiffs in In re High-Tech Employee use the fact that key and well-known players “controlled” multiple companies or sat on multiple companies’ boards of directors, which allegedly permitted them to facilitate the charged conspiracy. This is a good reminder that companies should seasonally inquire about their board members’ other positions.

Final Takeaways

A company can ask itself a few simple questions to identify the antitrust and discovery risks presented by Adobe, Lucasfilm, and In re High-Tech Employee, such as:

  • Does a contemplated employment practice involve any agreement or understanding with a competitor?
  • Does a contemplated employment practice potentially restrict a current or former employee’s mobility, salary, etc.?
  • In a government investigation, should extra care be taken to narrow discovery obligations that potentially could complicate follow-on private litigation?
  • What other positions do our board members and officers occupy outside of our company?

Such questions—and the answers to them—are good first steps to ensure that hiring and other employment practices will not inadvertently lead to potential antitrust liability.

David Stanoch is an associate in the antitrust and trade group at Dechert and focuses his practice on antitrust/competition and mass torts and product liability matters. Mr. Stanoch has represented manufacturers of paper products, wood products, pharmaceutical products, dairy products, and steel products in direct and indirect purchaser federal class actions as well as in subsequent “opt-out” litigation involving, among other claims, federal and state antitrust law price-fixing and monopolization claims. Mr. Stanoch has also represented pharmaceutical companies in class actions and mass tort actions involving consumer fraud claims and alleged manufacturing and regulatory compliance issues. Carolyn Budzinski, an associate in Dechert’s antitrust/competition group, focuses her practice on antitrust and intellectual property matters. She has represented clients in a variety of novel class actions and other complex litigation involving federal and state antitrust and consumer protection claims. She also counsels clients on the application of the antitrust laws and other commercial matters. Both authors are also active in pro bono work. Both are in the firm’s Philadelphia office.