January 31, 2012
If current events continue in their present direction, seven of the world’s largest and most influential tech companies may have to pay anywhere from 5% to 10% of the yearly earnings of tens of thousands of their employees. Not only that, but these payouts may have to be calculated all the way back to 2005.
As reported by TechCrunch, Google, Apple, Adobe, Intel, Intuit, Pixar, and Lucasfilm are now defendants in a class action lawsuit alleging that the tech giants conspired together with the purpose of violating long-standing antitrust laws in order to artificially suppress the wages of their employees.
Essentially, the lawsuit alleges that the tech companies entered into an informal (and illegal) agreement not to hire one another’s employees. In refusing to hire the workers, a cartel was formed that prevented the workers from migrating to the competition for higher wages, thus keeping the cost of hiring from the labor pool down to an artificially low level.
Similar accusations arose back in 2009 when the U.S. Department of Justice investigated a complaint against the companies regarding antitrust violations. The DOJ investigation revealed that the companies did in fact keep “do not call” lists of names to avoid recruiting. After these findings, and the civil suit that resulted, the companies opted to settle out of court in September 2010. Obviously, a significant portion of the agreement was that the companies would stop the practice of keeping “do not call” lists.
However, the employees who suffered from the formation of the cartel are now seeking reparations. They argue that the companies are still benefiting from these practices. It is for this reason that the employees have decided to sue.
As the lawsuit states, “The DOJ has confirmed that it will not seek to compensate employees who were injured by defendants’[tech companies] agreements. Without this class action, plaintiff [employees] and members of the class will not receive compensation for their injuries, and defendants will continue to retain the benefits of their unlawful collusion.”
The lawsuit, which was filed on May 4, 2011 in the California Superior Court in Alameda County, also argues that employees are entitled to financial compensation because senior executives from the companies “entered into an interconnected web of express agreements to eliminate competition among them for skilled labor.”
Interestingly enough, because these agreements were entered into separately, it is likely that each agreement is itself a separate violation of a variety of antitrust laws like the Sherman Act, the Cartwright Act, and other California state laws. This is in addition to the fact that these agreements, as the lawsuit claims, represent an “overarching antitrust conspiracy because each was made with knowledge of the other agreements, and relied on the other agreements to achieve a common goal of reducing compensation and mobility for highly sought-after skilled tech employees.”
The history of these illegal agreements began as far back as 2005. As John Constine of TechCrunch sums up, the chronology of the agreements is thus:
January 2005 – Pixar senior executives (which include Steve Jobs) draft written terms for a no-poach agreement and send them to Lucasfilm.
May 2006 – Apple and Adobe make agreements
2006 – Apple and Google make agreement shortly after Eric Schmidt joined Apple’s board of directors.
April 2007 – Apple and Pixar make agreements.
June and September 2007 – Google enters into agreements with Intuit and Intel that are identical to the agreements between Apple and Google, Apple and Adobe, and Apple and Pixar.
Now, before one launches into a tirade of righteous anger over claims of illegality levied against the late Steve Jobs, remember that these claims are more than mere accusations.
In a leaked email exchange between Steve Jobs of Apple and Eric Schmidt of Google in 2007, evidence of a no-poaching agreement can be seen as Jobs asks Schmidt to stop the attempts by Google to hire one of Apple’s employees.
On March 7, 2007, Jobs wrote to Schmidt, “I would be very pleased if your recruiting department would stop doing this.”
Schmidt forwarded this email on, along with a message, stating, “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? I will need to send a response back to Apple quickly so please let me know as soon as you can.”
As a result, the Google recruiter who had attempted to hire the Apple employee was fired immediately. Google’s staffing director then wrote back to Schmidt, “please extend my apologies as appropriate to Steve Jobs.” He also stressed that this was “an isolated incident.”
Another email exchange between two Google vice presidents indicated much the same attitude. In the emails, the two discuss ways “never to get into bidding wars” on talent with Schmidt and long-time Apple board member Bill Campbell both being copied on it.
However, the most damning email was one that was linked much closer to Jobs himself. In an email addressed to Jobs from the then-CEO of Palm, it was stated, “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.” Not only does this indicate that Jobs was involved in antitrust violations, or at least attempts to violate antitrust laws, it also indicates full knowledge of those violations where they exist.
Not surprisingly, all of the companies involved in the suit deny any wrongdoing.
However, as Constine wrote shortly before the hearing at which the companies attempted to have the lawsuit dismissed,
However, my research and sources indicate the defendants’ claims are false, the plaintiffs case is plausible, and so there are no grounds for dismissal. Furthermore, the only reason more evidence about the interconnection between the agreements isn’t available is because they were made so secretively.
The case should be allowed to proceed because the plaintiffs have produced 'smoking guns' indicating a deep conspiracy. Specifically, 'Do Not Cold Call' lists which defendants used to implement the agreements, and the written terms of Pixar’s agreement with Lucasfilm. These signal that today’s joint motion to dismiss the case should be denied because if discovery is permitted to continue, there’s a reasonable expectation that evidence of illegal activity will be revealed.
If the defendants’ motion to dismiss the case is denied, the case will move towards a trial by jury in June 2013. Rather than leave an assessment of damages to the judge and jury, the defendants may try to settle the case, similar to how they settled with the Department of Justice’s federal case in 2010. In the defendants lose or settle, full-time employees of the defendants could be compensated for the 10-15% of lost wages estimated by the plaintiffs’ law firm Lieff Cabraser.
Constine was absolutely correct in his prediction. Only a matter of hours after he posted his article, the judge lifted the stay of discovery and refused to dismiss the case.
After the hearing, the attorney representing the employees, Joseph R. Saveri of Lieff Cabraser, gave reporters a statement in which he assessed the possible level of damages that the workers might be compensated for. Saveri stressed that software engineers make around $100,000 a year (a conservative estimate) and that employee compensation “was suppressed between 5 and 10%.” He also stated that “tens of thousands” of employees were affected.
If Saveri’s assessment is accurate, then each of the employees involved in the suit may be entitled to anywhere from $5,000 to $10,000 for each year they worked for one of these companies. Those who made more than $100,000 a year could be entitled to much more. As John Constine points out, if only 10,000 entry-level engineers are awarded damages, the damages awarded could be around $150,000,000.