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South Korean electronics companies Samsung and LG are facing a lawsuit that accuses the two of conspiring to not hire each other's employees in the U.S.
According to the lawsuit filed Sept. 9 by a former LG sales manager in U.S. District Court, Northern District of California, the nonpoaching agreement dates back to 2005 and has had the effect of suppressing workers' wages by eliminating competition.
The plaintiff, A. Frost, says in the lawsuit that he was contacted by a recruiter via LinkedIn in 2013 who was seeking to fill a position with Samsung. According to Frost, the recruiter told him later that day: "I made a mistake! I'm not supposed to poach LG for Samsung!!! Sorry! The two companies have an agreement that they won't steal each other's employees."
An LG spokesman denied the accusation while Samsung declined to comment.
The suit seeks class-action status on behalf of all LG and Samsung employees in California.
It alleges that the similarity between LG and Samsung increases the impact of their collusion.
"In the United States, LG and Samsung more closely resemble one another than any other employer. Therefore, the agreement cuts defendants' employees off not only from the closest competitor for salary and benefits, but also from the most obvious step for career advancement outside of the employee's current position," according to the suit.
"This is not the first time that large employers in California have been accused of colluding to protect their investment in their respective workforces and to try and prevent employee attrition to market forces and competition," said Mitch Danzig, an attorney in law firm Mintz Levin's San Diego office.
Six big tech companies—including Apple, Google, Intel and Adobe—settled civil charges with the U.S. Justice Department in 2010. The companies didn't admit wrongdoing or pay fines. In 2015, the same companies agreed to pay 64,000 current and former workers $415 million to settle a class-action lawsuit around the same allegations. The companies again denied wrongdoing.
Noncompete or Not?
"If true, [the Samsung/LG accusation] plainly runs afoul not only of anti-trust laws but also California's laws and public policy favoring employee mobility," Danzig said. "However, it is likely a practice that some employers—particularly those trying to hold on to relatively rare, highly skilled, technical employees, for whom the investment in recruiting, training and retaining is great—are tempted to engage in, because California, unlike the overwhelming majority of states, does not allow noncompete agreements for employees that don't strictly fall within the exceptions for the sale of a business or dissolution of a partnership."
Danzig advised employers to consider requiring certain valuable employees to accept employment and/or proprietary information agreements with robust noncompete and nonsolicit provisions as a condition of employment. But first "make sure that those agreements are compliant with the particular requirements for such provisions in the state where the subject employees reside," he said. "It is not enough to know that the state generally allows noncompete agreements. Many states such as Washington and Colorado allow noncompetes but have specific requirements that the employer has to follow in order for the noncompete term to be enforceable."
Anti-poaching arrangements that prohibit direct solicitation can hinder recruiters in the trenches in the war for talent. "In my personal opinion, candidates should have the flexibility and freedom to determine where and for who they want to work," said Amy Miller, a recruiter for Microsoft based in Seattle.
She added that some recruiters may bristle at anti-poaching deals, but it's important to note these arrangements do not necessarily prohibit candidates from freely moving between companies.
"I'm not aware of any rules that would keep a candidate from applying to the company of their choice, unless it's a noncompete which is then between the candidate and their employer," Miller said. "So the best remedy in this type of case is for recruiters to work hard at being the kind of people candidates want to reach out to."
Know Your Retention, Engagement Drivers
So what should companies be doing in lieu of resorting to anti-poaching deals?
"First, companies need to understand the drivers of retention and engagement among their employees and do an honest assessment of the extent to which their employee value proposition and total rewards programs are addressing those drivers," said Laura Sejen, managing director of Willis Towers Watson's human capital and benefits business, based in New York City. "For example, we know from our 2016 Talent Management & Rewards research that the top two drivers of retention among U.S. employees are base pay and opportunities to advance their career. So as part of the assessment or audit of the company's total rewards programs, one key question is whether pay levels are competitive from an overall perspective and in particular, whether they are fully competitive for key workforce segments such as critical-skill employees, high potentials and top performers."
If not, adjustments must be made, Sejen said. "We also know from our research that almost half of U.S. employees think they need to leave their organization to progress their careers. That flags ample room for improvement in the effectiveness of organizations' programs on this top driver of retention."
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