No poaching agreements warning after US tech firms settle workers’ claim

A UK employment lawyer warns competing companies they could be fined if they agree not to poach each other’s staff, following the outcome of a class action in the US involving leading technology companies.

Tue, 6 May 2014

A UK employment lawyer warns competing companies they could be fined if they agree not to poach each other’s staff, following the outcome of a class action in the US involving leading technology companies.

The US case involved Adobe Systems, Apple, Google and Intel who allegedly agreed they would not headhunt each other’s staff.

The Apple and Google employees, who brought the case to court, allege they missed out on higher wages because of an agreement between the companies not to approach each other’s staff.

The trial had been due to begin on 27 May in San Jose, California, with the prospect of 100,000 workers sharing up to $9bn (£5.35bn). However, this prospect was averted following an out-of-court settlement agreed late last week, with news agency Reuters reporting that the four companies involved agreed a total payout of $324m to the workers.

Philip Landau, a partner at UK law firm Landau Zeffertt Weir, warns: “If companies in the UK entered into an agreement not to compete with each other, they will usually risk facing heavy fines for engaging in anti-competitive practices.

“Having said that,” Landau continues, “most employees who work for tech companies will have existing restrictive covenants in their contracts of employment, which are typically anything for three to six months, but can be longer.

“Such covenants will invariably limit whether they can work for competitors during the restricted period, but this is a very different matter from a cartel-type arrangement between employers restricting what would otherwise be a free movement of labour.”

Recruiting experts in the US and the UK are unclear on just how prevalent the practice of non-poaching is across different geographies and sectors.

Mark Braund is chief executive of IT and technology recruiter InterQuest, and previously worked for First Advantage, a company providing recruitment services tools and products. He tells Recruiter. “I have never seen any evidence of collusion between employers [either in the US or the UK].”

However, he adds that in his association with executive search firms in the past, he saw “a few isolated examples” of clients not wishing to source individuals from a particular company because they “come, in their eyes, tainted with a background of having worked for such and such a company”.

Elkie Holland, director of Prospectus IT Recruitment, tells Recruiter that while she has never come across example of no-poaching agreements between employers, both employers and candidates have told her of situations where individuals were effectively barred from working for their employers’ clients.

Holland says this happens in particular where an individual has skills and knowledge that are highly prized by several employers across the market.  

“That’s the way it works, and candidates know that when they go to work for a particular company. In the old days, it was rife; these days it is not as bad.”

Holland says that while she believes that people “should be able to work where they wish” there is a fine line between employees being able to sell their skills and companies potentially losing ‘trade secrets’ to their clients and competitors.

John Vlastelica, a US-based resourcing thought leader, founder and managing director of Recruiting Toolbox, and former head of resourcing at Amazon and Expedia, says the situation is clouded by the fact that big companies work with many suppliers and customers, increasing the chances that they are competing for talent with these organisations.  

“It is very difficult to keep aware of who is and who isn’t on that list,” he says.

Vlastelica points to IBM and the big consulting firms as example of organisations that are engaged in multiple and complex relationships with thousands of other organisations.

And with many senior executives sitting on each other’s board, he says he can “only imagine the kind of conversations” that they have on the issue of talent.

Mayel de Bornio, co-founder of multiple language translation technology start-up Babelserve, tells Recruiter: “As a start-up founder, I'm not playing the same game as these tech behemoths of competing for talent based on compensation. We have to be more innovative and inspiring for people to knock on our door for different reasons, such as sharing our big vision, wanting to make more of an impact, or having a new kind of lifestyle.

“We hire people who work remotely from anywhere in the world, not in cubicles in Silicon Valley.”

Background of the case: Details of the alleged conspiracy emerged during pre-trial proceedings. A string of emails highlighted how major technology employers allegedly agreed not to hire each other’s workers.

The New York Times News Service reported one example of how, when Google was looking to employ a former Apple employee in Paris, the company sought permission from the late Steve Jobs, Apple’s founder, and former chairman and chief executive officer.  

And when Jobs found out that Google also wanted to hire other former Apple employees, Jobs wrote: “We’d strongly prefer that you not hire these guys.” Google then allegedly backed off.

Another email exchange cited in the lawsuit revealed Eric Schmidt, former CEO of Google, telling Jobs that a Google recruiter who approached an Apple employee would be fired.

Based on court files Reuters reported that another exchange of emails showed Google's HR directors asking Schmidt about sharing the ‘no cold call’ pact with other competitors.

Schmidt responded that he preferred it be shared “verbally, since I don't want to create a paper trail over which we can be sued later”.

Recruiter contacted the four companies named in the lawsuit.

An Intel spokesperson tells Recruiter: “We continue to deny the allegations contained in the suit and deny that we violated any laws. We elected to settle this matter in order to avoid the risks and burdens and uncertainties associated with ongoing litigation.  

“We won’t comment on the terms of settlement until it finalised and on file with the court. Any further comment from us is not appropriate at this time.”

A spokesperson for Google tells Recruiter the company does not wish to comment.

An Apple spokesperson, tells Recruiter: “We aren't commenting on this story.”

Adobe Systems tells Recruiter: “We firmly believe that our recruiting policies have in no way diminished competition for talent in the marketplace. Adobe strongly denies that it violated any laws or engaged in any wrongdoing.

“Nevertheless, we have elected to settle this matter in order to avoid the uncertainties, cost and distraction of litigation. Terms of settlement are confidential. We don’t expect the settlement to have a material impact on Adobe’s financials.”

And in recent days, e-commerce giant eBay has also agreed to a settlement relating to accusations of anti-competitive hiring, the BBC reports.

In two separate lawsuits by US regulators, eBay was accused of agreeing with technology firm Intuit not to poach each other’s employees.

The suits were brought by the US Department of Justice and the attorney general of California in 2012. As a result, eBay will pay California $3.75m and refrain from anti-competitive hiring behaviour for five years.

The settlement is subject to approval by a California court.


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