The Department of Justice’s Antitrust Division recently filed a significant antitrust action against some of the largest technology companies in the country – Adobe, Apple, Google, Intel, Intuit and Pixar – accusing them of agreeing not to solicit each other’s employees for open job opportunities. The action, United States v. Adobe Systems, Inc., et al., Case No. 1:10-CV-1629 (D.D.C.), alleges that these agreements have had an anticompetitive effect on their employees’ ability to change jobs and increase their compensation and benefits through lateral movement, thus violating Section 1 of the Sherman Act.

Concurrent with the filing of the action, the Antitrust Division also filed a proposed Final Judgment that would potentially resolve the matter. The proposed Final Judgment, to which the defendants consented, would require the defendants to terminate their use of the nonsolicitation agreements and to engage in various compliance activities. If approved by the Court, the settlement would bring the matter to a swift close, but it would appear to be a mistake to assume that it will mean an end to the Antitrust Division’s activity in this area. To the contrary, the Antitrust Division announced that it is continuing to investigate whether similar practices are occurring in other industries as well. Thus, consideration as to whether a company’s hiring practices may give rise to antitrust risk – something to which companies traditionally have not given significant attention – should clearly be moved up on every company’s “to do” list of compliance activities.

The Action

As described in the Antitrust Division’s complaint, the defendants allegedly agreed to refrain from “cold calling” each other’s employees about new job opportunities. The complaint further alleged that these agreements, which were managed by some of the most senior executives at the companies, disrupted the normal salary-setting mechanisms in the labor market for high-tech employees. In addition, the Antitrust Division maintained that joint ventures among the defendants (which might, in some circumstances, justify some limitations on employee movement), could not excuse defendants’ conduct, because the non-solicitation agreements were not reasonably related to such ventures, given that they prohibited solicitation of any of a company’s employees without respect to geography, job function, product group, or time period. Accordingly, the Antitrust Division maintained that the agreements were naked restraints on competition and per se violations of the Sherman Act.

If approved by the Court, the Final Judgment will not only prohibit the defendants from enforcing their agreements, but also prohibit them from entering into any further employee non-solicitation agreements for a period of five years, except under limited circumstances. The Final Judgment would also require defendants to conduct employee compliance training seminars and allow the Antitrust Division to inspect company records respecting compliance with the terms of the Final Judgment. While the settlement with the Antitrust Division does not require the defendants to pay a civil penalty, the settlement does not bar civil actions by employees who can show that they suffered antitrust injury as a result of the defendants’ agreements.

Interestingly, this is not the first time that the Antitrust Division has used the Sherman Act to target anti-competitive agreements in labor markets. In 1994, the Antitrust Division brought an action against eight Utah hospitals alleging that they had conspired to depress the salaries paid to the registered nurses that they employed. That action, like the Adobe Systems action, was settled by a consent judgment. See United States v. Utah Society for Healthcare Human Resources Administration, Case No. 94C282G (D. Utah 1994). Since then, however, the Antitrust Division has not been particularly active in this area. Some private antitrust actions have been brought, with many of them, like the Utah Society for Healthcare Human Resources Administration matter, alleging restraints in the market for nurses’ services. One such matter, Fleischman v. Albany Medical Center et al., Case No. 1:06-cv-00765 (N.D.N.Y.), was recently settled for almost $5 million dollars.

Broader Implications

Although Adobe Systems involved a specialized market for technology employees, it should be clear that any business that seeks to reach agreements with its competitors to limit the hiring of each other’s employees, or their compensation levels, faces similar antitrust risks. The Adobe Systems matter signals a heightened interest by the Department of Justice in taking action where such conduct is found. For that reason, every company would be well advised to consider, or reconsider, whether its practices would pass muster if examined by the Antitrust Division (or a plaintiff ’s attorney). In addition, consideration should be given to whether conduct might potentially violate state laws as well. The Competitive Impact Statement filed by the Antitrust Division in support of the proposed settlement notes that California Business and Professions Code §16600 invalidates any contract that would restrain an individual “from engaging in any lawful profession, trade, or business.” This provision has been used in the past to strike down certain employer non-solicitation and non-compete clauses. Similar restrictions can also be found in other states. No review of an employer’s restrictions on employees can be considered complete without an examination of these issues as well.

Finally, it is important to note that, while the Antitrust Division’s action should prompt all companies to examine whether their hiring practices pass muster under the Sherman Act, this does not mean that all employee non-solicitation agreements will raise antitrust concerns. The Final Judgment in Adobe Systems itself expressly recognizes that non-solicitation agreements that are “ancillary to legitimate pro-competitive collaborations,” such as agreements entered in connection with a merger, joint venture or legal settlement, may be permissible. However, the Adobe Systems action makes clear that a careful review of whether such a restriction meets this standard has never been more important.