So, what does last month’s antitrust lawsuits against eBay by the DOJ and the State of California mean for the continued use of merger and other types of agreements (like NDAs and confidentiality agreements) that often contain clauses restricting one party from soliciting or hiring the other’s employees? Probably not much.
In the recently filed cases, eBay’s former CEO, Meg Whitman, and Intuit’s founder and executive committee chair, Scott Cook, were supposedly involved in hatching an illicit agreement whereby eBay and Intuit agreed not to recruit each other’s employees and eBay agreed not to hire Intuit employees, even those who approached eBay. According to press reports, eBay spokeswoman, Lara Wyss, said “eBay Inc. strongly believes that the Department of Justice and California attorney general are wrong and are using the wrong standard in these matters.” She also reportedly said: “The DOJ and state attorney general are taking an overly aggressive interpretation in their enforcement of antitrust law in this area” and that “eBay will vigorously defend itself.”
“No-hire/non-solicitation” provisions in transactional agreements, which are restrictions designed to make the asset being sold more attractive to buyers (e.g., as an ongoing business), can help ensure a successful sale. In NDAs and confidentiality agreements, these provisions facilitate the exchange of information during due diligence. Like any other restrictive covenant that is ancillary to a legitimate business purpose, as long as the restriction is reasonably limited in scope it should not raise concern under the antitrust laws. What matters is whether the restriction is reasonable in scope in terms of duration, territory, and product space or line of business.
DOJ did not name Intuit in the complaint against eBay, presumably because Intuit already had settled a related lawsuit. Last year DOJ settled a 2010 lawsuit against Intuit and several additional technology companies over a series of bilateral agreements not to solicit each other’s employees. The eBay case evidently grew out of the same investigation.
Each of the technology companies that settled with DOJ in 2010 remains embroiled in antitrust class actions in California federal court. In October, plaintiffs asked the district court judge to certify a class of all salaried workers employed by the companies between 2005 and 2009, which numbers more than 100,000 people. Alternatively, plaintiffs asked the court to certify a class of salaried employees who worked in technical, creative, and research and development positions (numbering more than 50,000) for the same period.
As things develop with the eBay case and the anti-poaching antitrust class action in California, we’ll be sure to keep you informed.