Tech Firms Settle Case, Admit Secret Agreements to Not Poach Employees

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Sep 25, 2010

* See update below

Six leading high-tech companies have agreed to settle an antitrust claim arising from an arrangement among them not to poach each other’s employees.

The U.S. Department of Justice announced the settlement in Washington Friday and simultaneously filed a civil antitrust action. Brought against Adobe Systems, Apple, Google, Intel, Intuit, and Pixar, the lawsuit details the alleged hiring arrangements. Accompanying the civil complaint was a proposed settlement in which the firms agree not to engage in anti-competitive no solicitation agreements.

The DOJ says the settlement “prohibits the companies from entering, maintaining or enforcing any agreement that in any way prevents any person from soliciting, cold calling, recruiting, or otherwise competing for employees. The companies will also implement compliance measures tailored to these practices.”

The investigation was launched last year into recruiting collusion among a number of firms, including Google and Apple. The arrangement between the two firms, the Justice Department now says, began “no later” than 2006 when the two companies instructed recruiters not to cold call the other’s employees.

Similar arrangements existed, the Justice Department charged in the suit, among the other four companies. In a press statement the department issued, it said that in addition to the Google-Apple agreement, similar no-poaching agreements existed between Apple and Adobe, Apple and Pixar, Google and Intel and with Intuit.

Google: we didn’t hinder hiring or affect wages

Google didn’t issue a formal statement. But in a post on Google’s Public Policy blog, Amy Lambert, Associate General Counsel, Employment, said the company decided in 2005 not to “cold call employees at a few of our partner companies. Our policy only impacted cold calling, and we continued to recruit from these companies through LinkedIn, job fairs, employee referrals, or when candidates approached Google directly. In fact, we hired hundreds of employees from the companies involved during this time period.

“While there’s no evidence that our policy hindered hiring or affected wages, we abandoned our “no cold calling” policy in late 2009 once the Justice Department raised concerns, and are happy to continue with this approach as part of this settlement.”

However, the Justice Department, in its public statement on the settlement, said the recruiting arrangements among the companies “eliminated a significant form of competition to attract highly skilled employees, and overall diminished competition to the detriment of affected employees who were likely deprived of competitively important information and access to better job opportunities.”

The Associated Press reported that Adobe, Intel, and Intuit issued statements denying they did anything wrong. Each said they were settling to put an end to the matter. Neither Apple nor Pixar, a company once run by Apple founder and current CEO, Steve Jobs, issued statements.

UPDATE: The San Jose Mercury News has a number of additional details about settlement including quotes from Silicon Valley observers veterans who say they weren’t surprised by the secret non-poaching agreements.

It happens all the time,” said Valerie Frederickson, a Menlo Park-based human resources consultant. “The ‘do-not-call’  list scandal will be like the stock options backdating scandal of the ’90s: Everybody did it. It was standard operating procedure.”

Frederickson said deals are sometimes made at the highest reaches of companies; other times the anti-poaching edict is more subtle. One company that has a supplier relationship with another, for example, might not want to anger that partner and risk losing business by luring away quality workers.

“It’s like price-fixing the cost of your raw materials, but for these companies, their most valuable resource is intellectual property — their employees,” said anti-trust attorney Melissa Maxman. “So by manipulating the workforce, they’re going to set the price of the raw material for their businesses, thereby affecting the ultimate price to consumers.”

An executive at one of the companies cited in the complaint, who spoke on condition he not be identified, said “you can steal someone else’s employees through LinkedIn or personal references, but it was like, ‘If you’re going to steal my guys, just don’t do it under my nose by cold-calling them at work.”

But as Frederickson points out “the problem is, there is also a victim.” While these practices may be good for the bottom line, they are blatantly unfair to the rank-and-file, she said, adding, “You take some engineer who is in some real niche (area) and if he can’t go to work for four out of five companies, he is basically stuck at his current employer and he’s missing out on more money.”

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