Antitrust Laws Can Apply to Hiring Practices
On January 15, 2015, four major tech companies — Apple, Google, Adobe and Intel — asked a federal judge in San Jose, California, to approve a settlement of a class action lawsuit accusing them of violating federal and state antitrust laws. What was the alleged violation? In essence, that they agreed not to hire each other’s employees.
It is not uncommon for employers to get frustrated when they think there is too much movement of key employees from company to company. This can be particularly frustrating for employers who believe that they and their competitors are wasting a lot of time and effort – not to mention driving up the cost of labor – by constantly picking off each other’s top talent, or letting that talent “play them” by moving back and forth for more money. When that happens, it can be tempting to reach out to one another – often discreetly at the top levels of management – to call a “truce” and leave each other’s employees alone. That is what Apple, Google, Intel and Adobe were accused of doing including accusations that they not-so-discreetly agreed not to recruit each other’s employees, agreed to notify each other when making an offer to another’s employee, and agreed that when offering a position to another’s employee, neither company would counteroffer above the initial offer. The plaintiffs, former technical employees of the companies, brought a class action lawsuit alleging this conduct violated Section 1 of the Sherman Act, one of the key federal antitrust laws, which prohibits any “contract, combination… or conspiracy, in restraint of trade or commerce….”
Did the allegation have merit? That depends on whether the defendants actually did what they were accused of doing, but if so, yes – the Sherman Act prohibits restraints of trade not just in the marketplace for goods and services, but also in the marketplace for labor. After more than three years of discovery, including the taking of 107 depositions, the review of millions of pages of documents, and analysis of over 50 gigabytes of data consisting of some 80,000 different files, the defendant companies agreed to pay $415 million to settle the case. This amount was a small percentage of the plaintiffs’ total alleged damages.
Employers must be wary of any form of agreement – formal or informal – with competitors regarding the hiring or non-hiring of each other’s employees. For these purposes, the term “competitors” isn’t limited to those who compete for your customers – it can also include anyone who competes with you for employees. This also includes such things as sharing of pay information, which can be interpreted as a way of agreeing to fix wages at a certain level or as having that effect, either of which can be illegal.
On occasion, a competitor from whom you have hired key people may accuse you of violating the competitor’s rights. For example, the competitor may claim that you interfered with its employment contracts or stole confidential information through the hiring of its people. These can be serious accusations leading to potentially serious litigation. However, they also can be used as an intimidation tactic to get you to agree not to compete – an agreement which, as these technology companies learned, can itself cause major problems.