Silicon Valley tech firms under legal scrutiny for ‘anti-poaching’ agreements

The Justice Department in the United States has sued several tech giants including eBay, Apple, Google, Intel, Adobe, Intuit, Lucasfilm, and Pixar over an anti-poaching agreement that was in place between 2006 and 2009 that prohibited these companies from hiring, or “poaching,” each other’s employees. The Justice government says this pact “hurt employees by lowering the salaries and benefits they might have received and deprived them of better job opportunities at the other company.”

I’m not surprised that tech companies would go to such lengths. One of the biggest challenges companies face in the hyper competitive growth environment of Silicon Valley is recruiting and retaining talented engineers. Retaining talent is just as hard as recruiting in Silicon Valley. There is a constant threat to companies that their key employees will be taken away. These people often leave with the company’s knowledge and their IP, and as they leave it costs companies not only in terms of training and recruiting, but also in lost knowledge and risk to their IP. This is one of the reasons that outsourcing to India, even with all of the problems of long distance working and management has, is an attractive option – the perception is that that retention of employees will be better as there are not as many opportunities for employees with their skill set.

I am not condoning these practices, and while many of the larger technology companies did sign this will not poach agreement, it appears that not every company who was asked to be part of the pact agreed to be. For example, the CEO of Palm supposedly wrote to Steve Jobs from Apple declining to be part of the pact saying

“Your proposal that we agree that neither company will hire the other’s employees, regardless of the individual’s desires, is not only wrong, it is likely illegal.”

The lawsuits brought by the Justice Department has revealed that these anti-poaching agreements were gentleman agreements, meaning there was an unwritten policy at the companies to not recruit from each other.  The only evidence of these practices was several email communications that confirmed these practices. These emails show that these policies came from the highest levels of the companies in question.

Emails between Google’s CEO Eric Schmidt and Steve Jobs confirmed the no recruiting policy, and show Jobs asking Google to stop recruiting from their company. Schmidt said to others at Google in writing “I believe we have a policy of no recruiting from Apple and this is a direct inbound request. Can you get this stopped and let me know why this is happening?”

While in the US these practices have been conducted behind closed doors, with little writing, and have eventually lead to sanctions, the same cannot be said for places like Russia. A recent Engadget article says that several companies in Russia have openly admitted to similar such deals: Acronis, Epam, Kaspersky Labs, Parallels and Yandex have all promised not to actively recruit each other’s staff. Their argument is that this prevents salaries from getting out of control! As of yet, there has been no legal action taken against these companies.

Ebay, the most recent company to undergo investigation, stated in a recent New York Times article that it will vigorously defend itself. In the same article, an eBay spokeswoman states that their hiring practices conform to the law. It is their position that the Department of Justice is taking an overly aggressive interpretation in their enforcement of antitrust law in this area.

The mandate for the antitrust laws administered by the Federal Trade Commission is stated as follows: “Yet for over 100 years, the antitrust laws have had the same basic objective: to protect the process of competition for the benefit of consumers, making sure there are strong incentives for businesses to operate efficiently, keep prices down, and keep quality up.”

Generally the Sherman Act is meant to protect against unfair or monopolistic behaviors that restrain trade and thus impact on consumer prices. Most people would agree that the anti-poaching agreements are an unfair trade practice, but the impact on consumer pricing is debatable. If anything it seems to that it would have the opposite effect – if you can depress salaries, then the cost of goods will be lower and these savings can be passed on to the consumer.

In the past the DOJ had attempted to show the impact these would have on the market. They have now shifted their stance to say that such practices automatically have an impact on the market and are therefore illegal.

I’m unclear how successful these policies were to these companies in retaining talent, considering there were many companies never involved in the pact. I’m also not sure how successful it was in keeping salaries low. In any event, any benefits they may have received would most likely be countered by the class action law suits that several law firms are proposing. An online search reveals several firms who appear to be in the planning phases to launch a class action law suit. One such firm, Shubert Jonckheer & Kolbe LLP say they are investigating these agreements, and are inviting those with information on these agreements to get contact with them.

Monica Goyal
Monica Goyal
Monica Goyal, Entrepreneur, Lawyer and Innovator is the founder of Aluvion, a legal solutions company offering technology, paralegal and lawyer-driven solutions with a special focus on the quality, cost, and accessibility of legal services for both businesses and individuals. Monica began her career working as an engineer in R&D for companies like Toshiba, Nortel and Nokia while earning her Masters of Engineering at Stanford. Monica's history conditioned her to solve problems in a efficient and tech-savvy manner, an approach she brings with her to legal solutions. Monica currently sits on the Canadian Bar Association's Futures Initiative, and will be teaching a course on Legal Technology at York University’s Osgoode Hall. She was recently named one of 10 Women to Watch in Tech in the Journal of the American Bar Association.

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