Senior executives of Apple Inc., Google Inc., Adobe Systems Inc. and other Silicon Valley technology giants conspired in the mid- to late 2000s to fix and suppress employee wages, entering into “an interconnected web” of two-way agreements to eliminate labor competition among the companies, according to a class-action lawsuit headed toward a jury trial in May.
The employee complaint, now in the U.S. District Court for Northern California, arose from a 2010 U.S. Justice Department civil antitrust lawsuit and settlement requiring Apple, Google, Adobe, Intel Corp., Intuit Inc. and Pixar to abandon several bilateral “anticompetitive” agreements against directly recruiting each other’s skilled workers—and from a similar settlement that year with Lucasfilm Ltd.
The Justice Department found that the agreements “disrupted the normal price-setting mechanisms that apply in the labor setting.” In settling with the Justice Department, the companies admitted no wrongdoing.
Lead plaintiffs in the class action—former employees who worked as software engineers in California, Washington state and Arizona—allege that the companies, through an “overarching conspiracy,” suppressed compensation to artificially low levels in violation of federal antitrust laws. The agreements each involved a company either that was under the control of late Apple co-founder Steve Jobs or that shared at least one board member with Apple, the complaint states.
The defendants have argued, among other points, that no such overarching conspiracy existed and that they caused employees no financial harm.
The plaintiffs reached settlement agreements in 2013 with defendants Pixar, Lucasfilm and Intuit. An appeals court recently cleared the way for the plaintiffs to pursue the class-action case, representing some 60,000 workers, against Apple, Google, Adobe and Intel.
“From 2005 to 2009, the leaders of Northern California’s largest and most powerful companies agreed to reduce competition for workers by entering into an interconnected web of secret, bilateral agreements not to solicit—‘cold call’—each other’s workforces,” the plaintiffs allege.
“By shielding their employees from waves of recruiting, defendants not only avoided individual raises, they also avoided having to make across-the-board pre-emptive increases to compensation,” the plaintiffs claim.
Agreements among the companies to refrain from the common recruiting practice of cold-calling each other’s employees deprived workers of information regarding pay packages that they could have used to find higher-paying work or to negotiate for higher salaries with their existing employers, according to the lawsuit.
“Recruiters shouldn’t have constraints. They should
be able to bring in the best talent possible.
If that means recruiting from particular firms,
then so be it.”
–William Tincup, SPHR, CEO of Tincup & Co.
Was ‘The Force’ Behind Conspiracy?
While the case covers activity in the 2000s, the complaint includes evidence that the alleged conspiracy took root about 20 years earlier, when former Lucasfilm chairman and CEO George Lucas sold Lucasfilm’s computer graphics division to Jobs, who renamed the business Pixar. By 2005, Pixar and Lucasfilm had entered into at least three agreements to eliminate skilled-labor competition between them, the suit alleges.
Lucas didn’t think companies should bid against each other for employees—that profit margins wouldn’t allow it—and he and Pixar’s president at the time agreed, among other points, not to actively recruit each other’s workers, according to evidence in the case. (The Walt Disney Co. now owns Lucasfilm and Pixar.)
Steve Jobs expanded this agreement to include Apple and its workforce competitors, according to court documents, which also suggest that Jobs threatened to retaliate against companies that didn’t make or enforce anti-poaching agreements.
Among other allegations, in some cases based on e-mails or depositions:
- By 2004, Pixar sought Jobs’ permission before making employment offers to Apple workers—even if the employee applied independently.
- In 2005, Intuit Chairman Bill Campbell, an Apple board member and then-advisor to Google, helped Jobs enter into an agreement with Google’s executive chairman and then-CEO Eric Schmidt. An e-mail from Campbell informs Jobs that Schmidt “stopped all efforts to recruit anyone from Apple.” On the same day, Apple’s HR head told her staff to add Google to their “hands-off” list.
- Also in 2005, Google’s recruiting director was asked to make a “do not cold call” list of businesses with which the Internet giant had special agreements not to compete for workers. Schmidt allegedly told another Google executive that he preferred information about the list be shared verbally with Google competitors, “since I don’t want to create a paper trail over which we can be sued later,” a court filing says.
- Steve Jobs in 2005 complained to Adobe’s then-CEO Bruce Chizen that Adobe was recruiting Apple employees, and threatened to start recruiting Adobe workers—an exchange that led to an agreement not to solicit each other’s employees.
- Google entered into a “no poaching policy” with semiconductor chipmaker Intel. This allegation is based partly on a 2007 e-mail from Intel’s then-CEO Paul Otellini, a Google board member, to an Intel recruiter, stating as much. Later, responding to an e-mailed question from an Intel recruiter about the existence of an agreement not to recruit senior talent from Google, Otellini said he and Google’s Schmidt “have a handshake ‘no recruit’ ” arrangement. “I would not like this broadly known,” Otellini noted.
- By June 2007, Google had expanded a noncompete agreement with Intuit to include all Intuit employees.
- Intel agreed in 2008 not to pursue Pixar employees.
- By the summer of 2009, Apple’s “hands-off” list included all other defendants. Jobs repeatedly called CEOs of the other defendant companies to stop recruitment of his company’s employees. Google allegedly terminated a recruiter who had solicited an Apple employee within an hour of Jobs’ contacting Schmidt to complain. At one point, Campbell wrote to Google co-founder Sergey Brin saying, “Steve just called me again and is pissed that we are still recruiting his browser guy.”
Facebook, Palm Say No
One holdout from these agreements was Ed Colligan, Palm’s president and CEO at the time, who resisted pressure from Jobs, court records indicate. Colligan has stated that Jobs suggested Palm could face patent-infringement lawsuits from Apple if the company didn’t agree to stop recruiting Apple employees.
Colligan wrote to Jobs that the proposal “is not only wrong, it is likely illegal,” according to documents. “I can’t deny people who elect to pursue their livelihood at Palm the right to do so simply because they now work for Apple, and I wouldn’t want you to do that to current Palm employees.”
Colligan also told Jobs, “I want to be clear that we are not intimidated by your threat.”
Court documents also indicate that Facebook resisted an attempt by Google to convince the popular social networking site to stop poaching Google employees. Eventually, in late 2010, after studying Facebook’s recruiting strategy, Google announced raises and bonuses for all salaried employees, partly in response to rising attrition, according to documents.
Separately, the federal and California governments have been pursuing similar allegations against eBay Inc., claiming in U.S. District Court for Northern California that the giant auction site had an agreement with Intuit not to solicit each other’s workers.
HR expert William Tincup, SPHR, CEO of the HR consultancy Tincup & Co., believes the tech companies in the employee class-action case made it harder on themselves by limiting their ability to recruit talent, and that Jobs “and others that orchestrated what is tantamount to collusion will eventually be found out as villains.”
By agreeing not to recruit from one another, large tech players, aiming to drive down wages and remove incentives to job hop, “made their recruiters lazy, and technically they made the job of recruiting talent 100 times harder,” Tincup said. “Recruiters shouldn’t have constraints. They should be able to bring in the best talent possible. If that means recruiting from particular firms, then so be it.”
Dinah Wisenberg Brin, a former Associated Press and Dow Jones Newswires reporter, is a freelance writer based in Philadelphia.