|October 9, 2013|
Previously published on October 7, 2013
Facing stiff competition for talent and a mobile work force, several technology companies located in Silicon Valley allegedly made a pact not to recruit each other’s employees including agreeing not to “cold call” employees. This led to an investigation by the U.S. Department of Justice in which it concluded that the anti-poaching agreement violated antitrust law resulting in depressed wages and limiting job opportunities for software engineers. During the investigation, emails from top executives at these firms supported the conclusion that there was a “gentlemen’s agreement” to restrict recruiting. The companies settled the lawsuit brought by the DOJ by agreeing not to enter into similar agreements in the future.
Not surprisingly, the settlement sparked a class action complaint in California against several technology giants alleging similar anti-competitive activities, which had the alleged effect of suppressing wages and opportunities. After losing an initial class certification motion and thereafter narrowing the class to “technical workers,” the Plaintiffs’ attorneys reported to the court that three of those companies had agreed to pay a total of $20 million to resolve the case. At least four tech firms continue to fight, arguing that there was no conspiracy and that the case was not appropriate for class treatment.
Does this new focus suggest that companies should carte blanche to poach their competitors’ employees? The answer is no, and indeed, neither the DOJ action nor the class action lawsuit validate improper corporate raiding activities. While bringing such claims can be challenging, there are a variety of legal theories available if a poaching employer uses improper methods or acts with an illegitimate motive in a corporate raiding campaign.
The DOJ settlement and class action case also do not suggest that as an absolute principle, companies cannot agree not to solicit, or even hire, a competitor’s employees as part of the resolution of a lawsuit. In its Competitive Impact Statement, the DOJ expressly stated that appropriately tailored non-solicitation provisions reasonably necessary for “the settlement or compromise of legal disputes” were not prohibited. Moreover, a non-solicitation agreement between two companies limited to resolving specific dispute is unlikely to result in the broad anti-competitive effect necessary to implicate anti-trust laws.
What these matters do clearly suggest is that where companies are considering any type of formal or informal agreement to not recruit or hire each other’s employees - even in connection with potential resolution of a corporate raiding case - close analysis is required.