On October 24, 2013, Judge Lucy Koh of the U.S. District Court for the Northern District of California certified a class of employees in a wage suppression “no employee solicitation” antitrust case in In Re: High-Tech Employee Antitrust Litigation, Case No.: 11-CV-02509, 2013 U.S. Dist. LEXIS 153752 (N.D. Cal. Oct. 24, 2013). In an area in which plaintiffs have previously struggled, this is the second federal case in just over a month that has granted certification of a class of employees claiming wage suppression in violation of federal antitrust laws. See Cason-Merenda, et al. v. Detroit Medical Center, Case No. 06-15601, 2013 U.S. Dist. LEXIS 131006 (E.D. Mich. Sept. 6, 2013), which we blogged about here. These types of claims merit employers’ attention as the potential liability can be substantial if a class can be certified.

Background

On behalf of themselves and a class of employees, Plaintiffs alleged that seven high profile, high-tech employers reached agreements among themselves not to solicit each other’s employees and that the effect of these agreements was to suppress their wages. On April 4, 2013, the Court denied the Plaintiffs’ initial motion for class certification, but in doing so, acknowledged that the Plaintiffs had just received a large amount of documentary evidence and access to witnesses after the class certification hearing.  It therefore invited the Plaintiffs to amend their motion. Id. at *19. Plaintiffs did so in May, and in an 86-page decision, Judge Koh issued an order granting Plaintiffs’ Supplemental Motion for Class Certification.

The Class Certification Decision

In their Supplemental Motion Plaintiffs sought to certify a nationwide class of salaried technical, creative, and research and development employees who worked for any Defendant while that Defendant participated in at least one anti-solicitation agreement with another Defendant. Id. at *23. Plaintiffs estimated that the class exceeded 50,000 employees. Id. at *25.

The requirements of Rule 23(a) were not contested, and the Court found that Plaintiffs’ satisfied them. Id. at *31-39. The real battleground was predominance under Rule 23(b)(3). The question was whether Plaintiffs could show with proof common to the class: (1) that all or nearly all members of the class suffered injury as a result of the alleged antitrust violation (“antitrust impact”); and (2) the amount of damages suffered by class members. Id. at *39-40.

The Court concluded that Plaintiffs’ satisfied their burden regarding antitrust impact. In the Court’s view the record supported the Plaintiffs’ contention that the absence of employee solicitation could suppress the wages not only of the employees who would have been solicited, but also all other employees in the purported class. According to the Court, the evidence showed that each Defendant used formal administrative compensation structures that divided jobs into pay bands, zones, grades and ranges by which they evaluated and paid employees in groups in relationship to other groups. Id. at *86-87. It also found that in reaching compensation decisions it was important to each Defendant to maintain internal equity – “the idea that employees doing the same work would generally be paid similarly – in both hiring and promotions.” Id. at *93. Thus, if a Defendant is forced to raise an employee’s salary either in anticipation, or as the result, of solicitation by another employer, the Defendant would increase the pay of other employees to maintain internal equity. Id. at *86-101. The Court found that these conclusions were supported by substantial documentary evidence and the testimony of Plaintiffs’ experts. 

The Defendants argued that managers exercised broad discretion when setting and adjusting salaries and that in making compensation decisions, they valued performance over internal equity. As a result, they contended that compensation decisions were highly individualized and would require a case-by-case determination. The Court rejected these arguments finding that they were supported principally by declarations drafted for purposes of the litigation and were inconsistent with contemporaneously created documents. The Court also found the criticisms lodged by Defendants’ experts against the testimony of Plaintiffs’ experts unpersuasive because, among other things, they were “conclusory and contrary to the overwhelming evidence in the record.” Id. at *150-151.

Finally, with respect to damages the Court concluded that the formulaic model for calculating damages created by Plaintiffs’ expert satisfied the requirements of Rule 23(b)(3). Id. at *167-177.

Noteworthy Class Action Law Conclusions

In analyzing class action jurisprudence the Court reached a number of conclusions noteworthy to readers of this Blog. Id. at *41-54. For example, though as noted above it found that Plaintiffs had satisfied predominance on the damages issue as a result of a narrow reading of the Supreme Court’s decision in Comcast Corp. v. Behrend, 133 U.S. 1462 (2013), Judge Koh determined that the fact that damages calculations would require individualized inquiries does not defeat certification of a Rule 23(b)(3) class. Id. at *47. The Court also concluded that it was insufficient at the class certification stage merely to conclude that an expert’s opinion was admissible. Instead, the Court must also find that the opinion is persuasive, which may require the Court to resolve methodological disputes between competing experts. Id. at *53-54.

Employer Takeaway

As plaintiffs  become more successful at achieving class certification in wage suppression cases, the risk to employers expands exponentially. Not all “non-solicitation” and “no-hire” agreements are unlawful.  But such an agreement that is not ancillary to another business arrangement (a merger or acquisition, for example), is not limited in time and scope and is not designed to protect legitimate business interests can raise serious antitrust concerns.