Three of the seven companies defending allegations that they violated U.S. antitrust law by agreeing not to recruit each other’s employees agreed to settle all claims against them in In re: High-Tech Employee Antitrust Litigation for a total of $20 million.  This putative class action and substantial settlement are important reminders of the caution required when considering any kind of agreement not to not to recruit or hire another company’s employees.

Following the U.S. Department of Justice’s 2010 suits against high-tech companies Adobe, Apple, Google, Intel, Intuit, Lucasfilm and Pixar, private plaintiffs filed class action lawsuits alleging a conspiracy amongst these companies to eliminate competition for skilled labor and "prevent a ‘bidding war’ for talent that would drive up wages … ."  Plaintiffs alleged that the defendant companies agreed not to “cold call” each other’s employees (i.e., that they would not communicate with employees who did not apply for a job independently), and that these agreements were not related to any specific collaboration among the companies or limited by geography, job function, product group or time period.  In other words, they alleged that this “non-poaching” agreement was illegal per se under Section 1 of the Sherman Antitrust Act.  

The cases were consolidated in the Northern District of California before Judge Koh, who issued detailed decisions on defendants’ motions to dismiss (largely denying those motions) and plaintiffs’ motion for class certification.  Addressing certification, the court agreed with plaintiffs on the Rule 23a factors (numerosity, commonality, typicality and adequacy of representation), but denied the motion—with leave to amend—under the Rule 23b “predominance” factor, which requires plaintiffs to show that “common issues predominate over individual ones.”  The court held that while common evidence would predominate with respect to the facts of damages and antitrust violation, plaintiffs had not demonstrated a plausible method for showing common impact on all or nearly all members of the proposed classes.  The court cited concerns that the evidence would not “be able to show that Defendants maintained such rigid compensation structures that a suppression of wages to some employees would have affected all or nearly all Class members.” 

Nevertheless, the court permitted plaintiffs to file a supplemental motion for class certification.  In that motion, plaintiffs sought to narrow the proposed class to include only technical employees (a proposed “class of salaried technical, creative, and research and development employees who worked for a defendant while that defendant participated in at least one anti-solicitation agreement with another defendant.").  The defendants responded that even this class fails because plaintiffs cannot prove “the existence of compensation structures in which raises for some employees would 'ripple' across all 2,536 varied job titles and 61,666 diverse employees in the proposed class at seven very different companies.”  The court held a hearing on the supplemental motion in August 2013, but has not yet ruled.

In two settlement agreements reached after plaintiffs’ supplemental motion, three of the seven defendants agreed to settle for a total of $20 million (in one, sister companies Lucasfilm and Pixar agreed to pay a total of $9 million; in the other, Intuit agreed to pay $11 million).  Plaintiffs announced these settlements in July 2013, but details were not disclosed until September 21, when plaintiffs filed their motion for preliminary approval of the settlements.  If approved, these settlements will resolve all claims against Intuit, Lucasfilm and Pixar. 

However, the case is far from over.  Plaintiffs’ claims against the four remaining defendants (Adobe, Apple, Google and Intel) remain, and plaintiffs’ settlement filing states that of the three settling defendants’, employees comprise less than 8 percent of the proposed class.  Furthermore, plaintiffs’ settlement filing states that “[t]he settlements preserve Plaintiffs’ right to litigate against the non-settling Defendants for the entire amount of Plaintiffs’ damages based on joint and several liability” and alleges that “the Non-Settling Defendants remain liable for the full amount of Class damages, including damages resulting from conduct by the Settling Defendants.”  If the claims against the remaining defendants proceed to trial and the plaintiffs ultimately prevail, the damage award could exceed $200 million.  

These recent developments in the High-Tech Employee Antitrust Litigation matter serve as an important reminder that companies should exercise extreme caution in fashioning any type of non-poaching agreement with their competitors, whether formal or informal.  Where such an agreement is ancillary to some other legitimate collaborative activity and narrowly tailored to facilitate the pursuit of that permissible activity, it will very likely pass antitrust muster.  But a non-poaching agreement that falls outside these parameters will be very difficult to defend and may be challenged as per se illegal.  The proposition that “I won’t go after your employees if you don’t go after mine” may seem reasonable from a business perspective, but the stark reality is that such an agreement will not even qualify for rule of reason treatment.