A federal court has decided that employees of seven well-known Northern California businesses may proceed with their federal antitrust law claims attacking their employers' alleged conspiracy to fix and suppress employee compensation and to restrict employee mobility.* The defendant employers are Adobe Systems, Apple, Google, Intel, Intuit, Lucasfilm and Pixar. Although these employers are huge and high-profile, the legal claims recognized by the Court could be applicable to lesser-known businesses that agree not to poach each others' employees.
According to the plaintiffs in High-Tech Employee Antitrust Litigation, who were software engineers employed by the defendant companies, the conspiracy consisted of an interconnected web of agreements, each with the active involvement and participation of a company under the control of the late Steve Jobs and/or a company whose board shared at least one member of Apple's board of directors. Each pair of the employer defendants allegedly entered into nearly identical "Do Not Cold Call" agreements, whereby each company placed the names of the other company's employees on a "Do Not Cold Call" list and instructed recruiters not to cold call the employees of the other company. Some of the other alleged agreements required a company to notify the other company when making an offer to an employee of the other company, even if that employee had applied for the prospective position on his or her own initiative without any cold calling. Other alleged agreements prohibited some of the companies from engaging in "bidding wars," i.e., making a counteroffer above the initial offer, if either company made an offer to the employee of the other company.
The agreements were allegedly negotiated, signed, and policed by senior executives of the defendant employers. The senior executives also actively concealed the agreements, and employees were not informed of, and did not agree to, the terms of the agreements.
The defendants' motion to dismiss the consolidated class actions was denied as to the plaintiffs' federal antitrust claims, the Court ruling that the plaintiffs had sufficiently pleaded an antitrust injury. In the course of doing so, the Court recognized that the alleged "Do Not Cold Call" agreements could significantly suppress employee compensation in at least four enumerated ways.
- When an employee of Company A receives a cold call from rival Company B, the current employee may either move to Company B, or use Company B's offer as leverage to negotiate increased compensation from Company A.
- When an employee of Company A receives a cold call from rival Company B, that information is likely to spread through informal employee communication channels, empowering other Company A employees to use that information in their own compensation negotiations.
- When rival Company B cold calls a Company A employee, Company B is likely to glean information about Company A's compensation practices. As a result, Company B is likely to match or exceed the compensation package offered by its rivals. This iterative process tends to lead to increased compensation levels across the industry, as companies vie for rivals' employees.
- When Company A knows that its employees may be cold called by rival Company B, Company A is more likely to forefend prospective poaching of its employees by preemptively increasing the compensation of its current employees.
The Court found the alleged agreements presented an actionable injury under federal law, despite the fact that, of the 21 possible bilateral pairings between the seven defendants, only six pairings had an alleged "Do Not Cold Call" agreement, leaving competition open among the remaining 15 pairings.
The defendants' motion to dismiss the plaintiffs' California state unfair competition claim was granted by the Court, which held that the speculative higher compensation plaintiffs may have gotten in the absence of the alleged conspiracy is a mere "expectation interest," not a "vested interest," as required for a restitution claim under state law.
These consolidated class actions followed the settlement of an antitrust lawsuit against the defendants filed by the U.S. Department of Justice, after DOJ had investigated two complaints regarding the matter. Although they did not admit any wrongdoing or violation of law, the seven employers agreed in a stipulated judgment to be "enjoined from attempting to enter into, maintaining or enforcing any agreement with any other person or in any way refrain from, requesting that any person in any way refrain from, or pressuring any person in any way to refrain from soliciting, cold calling, recruiting, or otherwise competing for employees of the other person."
* In re: High-Tech Employee Antitrust Litigation, No. 11-CV-02509-LHK (N.D. Cal. April 18, 2012).