California Tech Giants Settle DOJ Anti-Poaching Case

As followers of the recent debate about noncompetes in Massachusetts are well aware, a significant impetus in the push for a change in Massachusetts law has been the contrast provided by California, where employee non-competition agreements generally are unenforceable. As reported here when the MA debate started in earnest, proponents of efforts to prohibit noncompetes have argued that Silicon Valley has fared better than the Massachusetts tech sector in recent years at least in part because, in the absence of noncompete enforcement, it is easier for tech talent to move between companies and, therefore, for companies to innovate.

With that backdrop in mind, news last Friday from the U.S. Department of Justice of a settlement of claims of anti-competitive practices at several large technology companies is particularly interesting. The DOJ’s press release reports that it reached a settlement with six companies — Adobe Systems Inc., Apple Inc., Google Inc., Intel Corp., Intuit Inc. and Pixar — that prevents them from entering into no-solicitation agreements for employees. All of these companies are headquartered in California. According to the complaint filed in court by the DOJ (which is now being settled), each of the companies entered into reciprocal agreements with one or more of the other companies not to solicit each other’s employees.

For example, DOJ alleges that Apple and Google executives agreed not to cold call each other’s employees, with each company placing the other company’s employees on a "Do Not Cold Call" list. Similarly, Adobe placed Apple on its internal list of "Companies that are off limits" and Apple placed Adobe on a "Do Not Call List." The DOJ’s perspective on such practices at several large companies within a specific industry is that US antitrust laws were implicated, as these practices "interfered with the proper functioning of the price-setting mechanism that otherwise would have prevailed in competition for employees." That is, agreeing not to go after each other’s employees was anti-competitive and detrimental to affected employees. DOJ’s press release notes that none of the agreements "was limited by geography, job function, product group or time period." Such limitations, of course, are the hallmark of a narrowly-tailored employee noncompetition agreement.

Perhaps California needs noncompetes.