Federal court denies class certification in Silicon Valley antitrust case

Emails between tech CEOs showed widespread use of anti-poaching practices

When a Google recruiter emailed an Apple employee in 2007 about a possible opening, the late Apple CEO Steve Jobs discovered the email and quickly forwarded it to his counterpart at Google, CEO Eric Schmidt. “I would be very pleased if your recruiting department would stop doing this,” Jobs wrote.

In another email exchange that year, Schmidt told Intel CEO Paul Otellini, “If we find a recruiter called into Intel, we will terminate the recruiter. We take these relationships [between companies]exceptionally seriously.”  

Prior to Pixar’s merger with The Walt Disney Co., Pixar President Ed Catmull wrote to Disney: “We have avoided wars up here in Norther[n] California because all of the companies up here—Pixar, ILM [Lucasfilm], Dreamworks, and a couple smaller places—have conscientiously avoided raiding each other.”

This prohibition against recruiting practices by rival companies was apparently widespread in the Silicon Valley for years, stretching back to at least 2005. The problem with such policies was that the Department of Justice (DOJ) would later deem them unlawful restraints of trade.    

It is surprising that so many otherwise astute CEOs would write and retain “smoking gun” emails. It is possible that they did not believe that what they were doing was illegal and did not seek the advice of counsel. In fact, one company even included the anti-solicitation agreement in its HR policy manual.

But the DOJ has now put companies on notice that such agreements can result in antitrust prosecutions. In November 2012, the government brought a case against eBay based on the same kind of anti-poaching allegations. That case is pending in the U.S. District Court for the Northern District of California. 

“The Department of Justice takes a strong interest in agreements that it deems to have the potential to significantly harm or stifle competition between companies in highly competitive markets,” says Cozen O’Connor Member Michael Schmidt.

Illegal Cartels

In 2009, the Antitrust Division of the DOJ began an investigation into the employment and recruitment practices of Apple, Google, Adobe, Intel, Intuit, Lucasfilm and Pixar.  

One year later, the DOJ concluded that the defendants had entered into illegal cartels that were restraints of trade aimed at holding down wages and preventing the loss of their best engineers. 

In the stipulated final judgments, defendants did not admit 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[ing] [from] soliciting, cold calling, recruiting, or otherwise competing for employees.” Under the Clayton Antitrust Act, the final judgments had no prima facie effect in any subsequent private lawsuit bound to come.  

 In fact, in 2011, engineers at the investigated companies filed a class action in the U.S. District Court for the Northern District of California, claiming an aggrieved class consisting of as many as 100,000 employees. 

 They alleged that the defendants conspired and formed agreements to refrain from recruiting one another’s employees; provide notification when making an offer to another’s employee without the knowledge or consent of that employee; and cap pay packages offered to prospective employees. Plaintiffs also alleged that qualified workers who applied for vacant positions at rival companies without being recruited were not hired.

The plaintiffs claimed they would have gotten raises either from their current employers or at other jobs if the anti-poaching restrictions had not been in place. 

Defendants’ employees generally were kept in the dark concerning the provisions of the nonsolicitation agreements. However, in at least one instance, the nonsolicitation arrangement was memorialized in writing. According to the DOJ, Google listed Intel in its hiring policies and protocol manual among the companies that were part of a “Do Not Cold Call” list. 

High Hurdle

On April 5, U.S. District Judge Lucy Koh denied plaintiffs’ motion to certify the lawsuits as a class action. The circumstances for each employee in the purported nationwide class differed too widely, Koh said.  

But Koh referred in her decision to evidence supporting the possible widespread effects of the companies’ nonsolicitation policies. “The sustained personal efforts by the corporations’ own chief executives … to monitor and enforce these agreements indicate that the agreements may have had broad effects,” Koh wrote.

Koh allowed the plaintiffs to provide more evidence that the proposed class was not overly broad and did not also include employees who sustained no loss or detriment to their careers.  

Attorneys at Lieff Cabraser, lead co-counsel for the plaintiffs, did not respond to requests for comment. 

“Plaintiffs need to be able to marshal testimonial and/or documentary evidence that would show an overall correlation of wage movement for all or nearly all members within the class. This appears to be a pretty high hurdle for the plaintiffs to accomplish,” says Miller Canfield Principal Jay Yelton. 

Michael Kozubek

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