Tech Firms Resolve U.S. Antitrust Challenge to Hiring Practices

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

As the Department of Justice Antitrust Division continues its investigation into the use of “no solicitation” agreements among employers to hold down employee salaries and defections, six high technology companies have agreed to modify their recruiting practices to settle a federal antitrust action.

The Antitrust Division alleged that the companies entered into agreements that restrained competition between them for highly skilled employees. Under the terms of a proposed consent decree, the companies would be prohibited from entering into an agreement not to cold call or recruit an employee.

The civil complaint and proposed consent decree were filed on September 24 in the federal district court in Washington, D.C. The consent decree, if approved by the court, would resolve the government's suit.

Ban on Recruitment "Cold Calling"

The Department of Justice alleged that the six companies—Adobe Systems Inc., Apple Inc., Google Inc., Intel Corp., Intuit Inc. and Pixar—entered into five substantially similar agreements that banned "cold calling" of employees for recruitment purposes.

Senior executives of the companies purportedly entered the express agreements and enforced them. According to the government, the agreements—some of which date back to 2005—were naked restraints of trade that were per se unlawful under Sec. 1 of the Sherman Act.

The government contended that the agreements to ban “cold calling” were not justified by the legitimate collaborative projects in which the companies engaged. They were broader than reasonably necessary for any collaboration between the companies. The agreements were not tied to any specific collaboration, nor were they narrowly tailored.

Investigation of Employment Practices

In announcing the matter on September 24, the Justice Department said that the complaint arose out of a larger investigation by the Antitrust Division into employment practices by high tech firms. The statement went on to say that the Antitrust Division continues to investigate other similar no solicitation agreements.

This is not the first Justice Department action to challenge alleged efforts to hold down employee wages. In its Competitive Impact Statement explaining the settlement, the government cited a 1996 consent decree resolving an alleged agreement to curb competition between residency programs for senior medical students and residents of other programs (U.S. v. Assn. of Family Practice Residency Directors, W.D. Missouri, 1996-2 Trade Cases ¶71,533). The consent decree enjoined prohibitions on the solicitation of residents from other programs.

While the companies did not admit to any wrongdoing, the investigation opened the door for private antitrust claims from employees. Recent efforts to pursue antitrust class actions challenging employer efforts to damp wages have, however, not proven successful.

In Reed v. Advocate Health Care(N.D. Illinois, 2009-2 Trade Cases ¶76,758), the federal district court in Chicago rejected a class action against a purported conspiracy to suppress wages of registered nurses. Similarly, a federal district court in New Jersey refused to certify a putative class alleging a conspiracy among major U.S. oil companies to exchange information concerning employee competition.

Summary judgment was ultimately entered in favor of the defending oil companies in the long-running matter (In re: Compensation of Managerial, Professional and Technical Employees Antitrust Litigation, D. New Jersey, 2006-1 Trade Cases ¶75,096; 2008-2 Trade Cases ¶76,438).

A new release on the proposed settlement appears here on the Antitrust Division’s website. Text of the complaint and proposed consent decree appear here.

The proposed consent decree in U.S. v. Adobe Systems, Inc. will appear at CCH Trade Regulation Reporter ¶50,982.