Apple, Adobe, Google, and Intel had a $415 million settlement approved last week to settle the terms of a lawsuit brought by software engineers alleging that the companies had violated wage and anti-trust laws by agreeing not to recruit or “poach” each other’s employees.
The case began in 2009 when the U.S. Department of Justice Antitrust division investigated the employment and recruitment practices of the companies. Then, in 2011, software engineers sued the companies for damages, claiming the companies had agreed to provide each other notice whenever one made an offer to another’s employee. They also alleged the companies agreed to cap pay packages for prospective employees and to refrain from recruiting one another’s employees. Plaintiffs claim these agreements lowered their pay 10% to 15% below market. A California district judge ruled last Wednesday that the $415 million class action settlement was a fair estimation of the strength of the software developers’ claims.
The types of agreements alleged to have taken place in this case are typically per se illegal. That is, companies can’t agree among themselves to refrain from hiring one another’s employees where the sole purpose is to protect their respective businesses and diminish competition. The effect of such agreements is to prevent an employee from moving to another company, thereby restricting work availability in the market and depressing labor costs. This is a violation of anti-trust laws that prohibit agreements between entities that unreasonably restrain trade and affect interstate commerce.
There are, however, certain situations where agreement among businesses to not hire each other’s employees are legal. When there is a legitimate business agreement with a procompetitive purpose beyond simply restricting an employee’s mobility to protect the business, those agreements may be legal as long as they are reasonable. For example, where a company contracts help with another company for a specific project, the company and the contracting company may agree not to hire each other’s employees for the legitimate business purpose of not allowing one company unfettered access to another’s. Likewise, it may be permissible for two companies to agree as part of a merger or acquisition that they will not hire each other’s employees for a short period of time following the closing.
The lesson for employers? Think twice before setting up a deal with competitors in order to keep your employees. It might just be an anti-trust violation with the potential for a large recovery.
[Case No. 5:11-CV-02509, In Re: High Tech Employee Antitrust Litigation, N.D. California].