Employee Anti-Poaching Agreements Thwart the Free Market

An interesting case is playing out as we speak in Silicon Valley, where a group of high-tech employees has sued Google, Apple, Pixar, Lucasfilm, Adobe, Intel, and Intuit over an alleged “gentlemen’s agreement” not to recruit each other’s employees. In In Re: High-Tech Employee Antitrust Litigation, filed last May in federal court in San Jose, Calif., the plaintiffs are relying heavily on evidence provided by the U.S. Department of Justice, which has already done its own investigation into the alleged practices.

The DOJ evidence includes several emails among the various companies alluding to their “gentlemen’s agreement” not to recruit or even offer jobs to employees of each other’s companies. One particularly damning excerpt:

On May 28, 2005, Mr. Chizen, Adobe’s CEO, emailed Mr. Jobs, then CEO of Apple, forwarding an internal Adobe email from Theresa Townsley, Adobe’s Senior Vice President for Human Resources, to others at Adobe, regarding “Recruitment of Apple Employees.” In that email, Ms. Townsley wrote: “Bruce and Steve Jobs have an agreement that we are not to solicit ANY Apple employees, and vice versa…. Please ensure all your worldwide recruiters know that we are not to solicit any Apple employee. I know that Jerry is soliciting one now, so he’ll need to back off.”

According to the terms of a September 2010 settlement with the DOJ, the companies are already forbidden from such collusion, but the civil suit by the workers is to collect on the presumably artificially reduced wages and thwarted job offers they were subject to while their employers were abiding by the agreement.

There are reasons behavior like this is prohibited: it’s anti-competitive and deprives workers from the mailroom to the C-suite the ability to ply their trade in a fair environment. If the plaintiffs’ allegations are true, their employers were clearly engaged in a conspiracy to cut job competition and keep salaries low.

Even more globally, the free market doesn’t work properly if its players are pulling their punches. Top talent, from CEOs to secretaries, need to be able to negotiate in good faith and seek better employment if their current employers aren’t giving them what they need. They can’t do that if their current employer and their prospective employer are winking at each other and playing footsie under the table.

Executives all over should be watching this case. Here at Legal Issues in the Executive Suite, we promise to keep you posted.