National Implications From Settlement of High-Profile Employee Raiding Case

by Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
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Four major Silicon Valley-based tech companies—Apple, Google, Intel, and Adobe Systems—announced a settlement on Thursday, April 24, in a closely-watched lawsuit accusing them of conspiring to hold down salaries in the tech industry, just weeks before the case was scheduled to go to trial in San Jose. Although the terms of the settlement are not yet public, one news agency report indicates that the four companies agreed to pay a total of $324 million to settle the lawsuit brought by tech workers in a class action lawsuit pending in the U.S. District Court for the Northern District of California.

The lawsuit stems from a U.S. Department of Justice (DOJ) inquiry into the hiring practices of Silicon Valley businesses that revealed that companies had brokered agreements not to compete for one another’s engineers. In 2010, the DOJ concluded that the companies had reached “facially uncompetitive” deals that limited the job prospects of employees and ordered the companies to put an end to those agreements.

The companies’ software engineers later sued for damages, alleging that a conspiracy to refrain from soliciting one another’s employees amounted to violations of antitrust laws. They were expected to ask for $3 billion in damages at trial. In their action they claimed that the tech companies had agreed to provide each other notice whenever one made an offer to another company’s employees. The engineers also claimed that the companies agreed to cap pay packages for prospective hires in order to prevent bidding wars and to abstain from recruiting one another’s personnel. The companies deny any unlawful or anticompetitive conduct and assert that they reached the settlement in order to avoid the uncertainties, cost, and distraction of litigation.

The case has been closely watched due to the potentially high damages award and the fact that some of the Valley’s biggest names were involved. Some of the evidence in the case involved emails among such tech leaders as Apple’s late co-founder Steve Jobs, former Google CEO Eric Schmidt, and others. In a recent ruling, U.S. District Judge Lucy Koh distinguished the conduct of the four companies from that of others by noting that Facebook had allegedly refused to enter into “anti-solicitation agreements.”

Apple, Google, Adobe, and Intel had previously settled with the DOJ in 2010 by agreeing to refrain from entering into such no-hire agreements in the future. The four companies had since been fighting the civil antitrust class action. Other high-profile film production, animation, and tech companies had previously agreed to a settlement in the same action.

What This Settlement Means for the Future of Antitrust Litigation

California’s technology sector has often been a battleground over top engineering talent, particularly in light of the state’s statutorily-enshrined public policy disallowing noncompetition agreements set forth in section 16600 of the Business & Professions Code. While contractual clauses precluding the solicitation of employee clauses have been upheld, court cases have disallowed strict no-hire clauses as being in violation of California’s public policy. This legal action went further in asserting that the companies’ no-hire provisions amounted to anticompetitive conduct in violation of federal antitrust laws and resulted in employees’ wages being driven down.

This case underscores how employers in California and elsewhere need to tread carefully when entering into any agreement with competitors over the hiring of staff. Companies routinely enter into such “no-poaching” agreements, often when settling litigation over a restrictive covenant. While this legal action will not constitute precedent in litigation because it resulted in a settlement, it will likely spawn similar litigation filed by employees who believe that they have been precluded from obtaining jobs or earning higher wages due to such agreements. In such instances, it would not be surprising to see, in light of the focus on this case, disappointed employees asserting civil antitrust claims in what would normally be a garden variety breach of contract or employment case.

This case may also lead to increased competition over top talent, as well as potentially more litigation in California and elsewhere over alleged violations of restrictive covenants contained in employment agreements. While nonsolicitation-of-employee clauses are generally allowed in California, state court decisions have taken a dim view of strict no-hire provisions, such as those alleged to have existed in this lawsuit. Any agreement an employer adopts that aims at limiting its ability to hire employees should be vetted by counsel for its antitrust implications.

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Four major Silicon Valley-based tech companies—Apple, Google, Intel, and Adobe Systems—announced a settlement on Thursday, April 24, in a closely-watched lawsuit accusing them of conspiring to hold down salaries in the tech industry, just weeks before the case was scheduled to go to trial in San Jose. Although the terms of the settlement are not yet public, one news agency report indicates that the four companies agreed to pay a total of $324 million to settle the lawsuit brought by tech workers in a class action lawsuit pending in the U.S. District Court for the Northern District of California.

The lawsuit stems from a U.S. Department of Justice (DOJ) inquiry into the hiring practices of Silicon Valley businesses that revealed that companies had brokered agreements not to compete for one another’s engineers. In 2010, the DOJ concluded that the companies had reached “facially uncompetitive” deals that limited the job prospects of employees and ordered the companies to put an end to those agreements.

The companies’ software engineers later sued for damages, alleging that a conspiracy to refrain from soliciting one another’s employees amounted to violations of antitrust laws. They were expected to ask for $3 billion in damages at trial. In their action they claimed that the tech companies had agreed to provide each other notice whenever one made an offer to another company’s employees. The engineers also claimed that the companies agreed to cap pay packages for prospective hires in order to prevent bidding wars and to abstain from recruiting one another’s personnel. The companies deny any unlawful or anticompetitive conduct and assert that they reached the settlement in order to avoid the uncertainties, cost, and distraction of litigation.

The case has been closely watched due to the potentially high damages award and the fact that some of the Valley’s biggest names were involved. Some of the evidence in the case involved emails among such tech leaders as Apple’s late co-founder Steve Jobs, former Google CEO Eric Schmidt, and others. In a recent ruling, U.S. District Judge Lucy Koh distinguished the conduct of the four companies from that of others by noting that Facebook had allegedly refused to enter into “anti-solicitation agreements.”

Apple, Google, Adobe, and Intel had previously settled with the DOJ in 2010 by agreeing to refrain from entering into such no-hire agreements in the future. The four companies had since been fighting the civil antitrust class action. Other high-profile film production, animation, and tech companies had previously agreed to a settlement in the same action.

What This Settlement Means for the Future of Antitrust Litigation

California’s technology sector has often been a battleground over top engineering talent, particularly in light of the state’s statutorily-enshrined public policy disallowing noncompetition agreements set forth in section 16600 of the Business & Professions Code. While contractual clauses precluding the solicitation of employee clauses have been upheld, court cases have disallowed strict no-hire clauses as being in violation of California’s public policy. This legal action went further in asserting that the companies’ no-hire provisions amounted to anticompetitive conduct in violation of federal antitrust laws and resulted in employees’ wages being driven down.

This case underscores how employers in California and elsewhere need to tread carefully when entering into any agreement with competitors over the hiring of staff. Companies routinely enter into such “no-poaching” agreements, often when settling litigation over a restrictive covenant. While this legal action will not constitute precedent in litigation because it resulted in a settlement, it will likely spawn similar litigation filed by employees who believe that they have been precluded from obtaining jobs or earning higher wages due to such agreements. In such instances, it would not be surprising to see, in light of the focus on this case, disappointed employees asserting civil antitrust claims in what would normally be a garden variety breach of contract or employment case.

This case may also lead to increased competition over top talent, as well as potentially more litigation in California and elsewhere over alleged violations of restrictive covenants contained in employment agreements. While nonsolicitation-of-employee clauses are generally allowed in California, state court decisions have taken a dim view of strict no-hire provisions, such as those alleged to have existed in this lawsuit. Any agreement an employer adopts that aims at limiting its ability to hire employees should be vetted by counsel for its antitrust implications.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ogletree, Deakins, Nash, Smoak & Stewart, P.C. | Attorney Advertising

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