No hire agreements, or agreements between companies not to hire each other’s employees, have received a lot of attention in California during the last several years.
In 2010, the Antitrust Division of the Department of Justice reached settlements with several high tech companies – Adobe, Apple, Google, Intel, Intuit, Lucasfilm and Pixar – that prevented them from entering into no solicitation agreements for one another’s employees. According to the DOJ’s Complaint, the companies had entered into agreements that restrained competition between them for highly skilled employees (e.g. software engineers). The DOJ asserted that these agreements were “facially anti-competitive” agreements that “eliminated a significant form of competition … to the detriment of the affected employees who were likely deprived of competitively important information and access to better job opportunities.”
The tech company defendants did not admit to any wrongdoing but agreed to be enjoined “from attempting to enter into, maintaining or enforcing any agreement with any other person or in any way refrain from, requesting that any person in any way refrain from, or pressuring any person in any way to refrain from soliciting, cold calling, recruiting, or otherwise competing for employees of the other person.” United States of America v. Adobe Systems et al (D.D.C. 2011).
Civil suits followed in 2011 in which groups of current and former employees of the high tech companies sought $9 billion in damages under the Sherman Act, California’s Cartwright Act, Cal. Bus. & Prof. Code §16600 and California’s Unfair Competition Law. In re High-Tech Employee Antitrust Litigation, 11cv2509 (N.D.Cal.)(Judge Koh). According to the employees, the companies, among other things, agreed not to cold call potential hires from competitors. They also supposedly agreed to cap salary packages to avoid bidding wars over employees. Judge Koh certified a nationwide class of roughly 64,000 employees and denied the tech companies’ summary judgment motions in April 2013.
There was strong evidence that upper level executives at the companies had taken steps to discourage each other from soliciting employees. Apple’s Steve Jobs supposedly told Google’s Sergey Brin that “If you hire a single one of these people that means war.” Google’s Eric Schmidt noted that he didn’t want to create a paper trail over which he could be sued later. Judge Koh quoted Steve Jobs as saying that “We must do whatever we can” to stop cold calling each other’s employees and other competitive recruiting efforts between the companies.
Three of the defendants – Intuit, Lucas Films and Pixar – reached settlements quickly and paid $20 million to exit the litigation. Earlier this year, the remaining defendants – Adobe, Apple, Google and Intel – reached a settlement under which they have agreed to pay the plaintiffs $324,500,000. A hearing is set for June 19 on whether the Court should grant preliminary approval to the settlement. Most commentators seem to think that the settlement will be approved although one of the class representatives has asked the Court to reject the deal.
The amount of the settlement is staggering. Other companies will take note of the settlement and refrain from colluding to suppress wages. Nonetheless, it is important to keep the settlement in perspective. There were over 60,000 class members — an extraordinary number. One commentator suggested that the class members would only receive about $4,000 apiece. The class representatives would receive more for their efforts on behalf of the class. Paying the settlement won’t be hard for the defendants. Apple and Google supposedly hold over $200 billion in their bank accounts. The settlement amount is far less than the $3 billion that had been sought.
As dramatic as these developments are, it would be a mistake to assume that all such no-hire agreements among employers are wrongful. So long as companies have a valid protectable interest, they may be able to enter agreements that prevent them from soliciting each other’s’ employees. Determining when there is a protectable interest, however, may not be easy. Based on the DOJ settlement, it appears as if no hire agreements would be appropriate when necessary for mergers or acquisitions. Or when necessary for “contracts with consultants or recipients of consulting services.” In addition, the consent judgment did not bar the high tech defendants from unilaterally adopting a policy not to cold call employees of another company so long as there wasn’t any pressure for the other company to reciprocate.
There is no reason that similar civil actions couldn’t be filed in Colorado if companies conspired to refrain from recruiting each other’s’ employees. The Front Range is not Silicon Valley and there isn’t the concentration of high paying tech jobs that there is in Silicon Valley, but the civil actions in California were not driven by any unique aspect of California law. Rather, the actions were premised on federal antitrust law. (Plaintiffs dismissed their claim under California’s noncompete statute, and the other claims based on California law do not appear to have prompted the settlements.) Executives at any number of industries in Colorado, from energy companies to health care companies to tech companies, could decide that they could reduce costs if the companies all agreed not to solicit or hire each other’s employees.
One key to any case would be the evidence showing that the companies had conspired to refrain from soliciting employees. In the High Tech Employee case, there was remarkable evidence that there had been efforts to suppress wages. Finding that evidence and presenting it would be a challenge. Another key would be the effort to prove the damages associated with any no solicitation agreement. Proving the damages for any targeted class would require sophisticated testimony.