CADNUS-District-Court-California.gifBy Timothy F. Haley and Laura Maechtlen

Antitrust claims are not unknown or uncommon anymore for employers.  We have previously blogged about how workplace antitrust claims are coming into vogue for the plaintiffs’ class action bar.

The recent decision in In Re High-Tech Employee Antitrust Litigation, No. 11-CV-02509-LHK, 2012 U.S. Dist. LEXIS 55302 (N.D. Cal., Apr. 18, 2012), illustrates this trend.

Introduction And Summary Of Decision

A group of employees at four high-tech companies filed five class actions against their employers and three other high-tech companies alleging that the Defendants entered into a series of unlawful agreements not to recruit and hire each others’ employees. Plaintiffs alleged that these agreements violated federal and state antitrust laws and two additional California statutes. After the cases were consolidated, Defendants jointly filed a motion to dismiss. While the motion succeeded in getting rid of the claims brought under the two additional California statutes, the Court denied the motion with respect to the Plaintiffs’ federal and state antitrust claims. Id. at *49-50, 53. 

The decision serves as a warning that agreements between or among employers not to hire one another’s employees can violate antitrust laws. Nevertheless, the more challenging question for the Plaintiffs is whether they can obtain certification of their proposed class.  In other similar cases employees have met with mixed results in convincing a court that they can demonstrate antitrust injury with common proof. See, e.g., Weisfeld v. Sun Chemical Corp., 84 Fed. Appx. 257, 263-64 (3d Cir. 2004) (affirming denial of class certification with respect to plaintiff’s antitrust claim based on a “no hire” agreement because plaintiff was unable to show that he could prove that the class members suffered antitrust injury with proof common to the class).

Plaintiffs’ Allegations 

At the heart of the Plaintiffs’ consolidated complaint are five discrete bilateral agreements between the Defendants. In substance each of the so-called “Do Not Cold Call” agreements allegedly provided that the parties to the agreement would not solicit and hire each other’s employees. Id. at *11. Plaintiffs alleged that Apple was a party to three of these agreements with Adobe, Google, and Pixar, respectively. Pixar was also alleged to be a party to a Do Not Cold Call agreement with Lucasfilm, and Google was alleged to be a party to two additional agreements with Intuit and Intel, respectively. Id. at *12-15.  While Plaintiffs did not allege that each of the Defendants was a party to the same agreement, Plaintiffs asserted that these five discrete agreements resulted in “an overarching conspiracy” to decrease competition for skilled labor, reduce employee mobility, and suppress compensation. Plaintiffs also averred that each of the Defendants entered into the conspiracy with knowledge of the other Defendants’ participation. Id. at *15.

The Motion To Dismiss

Aided by evidence uncovered as a result of a prior Department of Justice investigation, the Plaintiffs easily defeated the Defendants’ argument that the complaint contained insufficient allegations of the alleged conspiracy and of the Defendants’ knowledge and intent. Id. at *25-40. The more interesting issue was the Defendants’ argument that the alleged conspiracy was not plausible and that the Plaintiffs failed adequately to allege antitrust injury. The five bilateral agreements did not cover all possible pairings between the Defendants. For example, although Adobe could not cold call Apple employees or vice versa, there were no allegations that Adobe was prohibited from cold calling the employees of Intuit, Google, Lucasfilm, and Pixar. According to the Defendants, of the 21 possible pairings between the seven Defendants, only six pairings had bilateral Do Not Call agreements, thereby leaving competition open among the remaining 15 pairings. The Defendants argued that, for an agreement to be effective in suppressing compensation, the other pairings would also have to be eliminated and thus, the alleged conspiracy was irrational and implausible. Id. at **40-41.

The Court rejected this argument. The Complaint alleged that the any failure to cold call any employee impacted not only the compensation of that employee, but also the compensation of all other employees. Plaintiffs supported this allegation with hypothetical examples. For example, Plaintiffs alleged that when a current employee of Company A receives a cold call from rival Company B, that information is likely to spread through informal employee communication channels, empowering other employees of Company A to use that information in their own compensation negotiations. The Court found that while the Plaintiffs’ economic effects argument needed to be proven, the Plaintiffs had pled sufficient facts alleging the economic plausibility of the conspiracy to withstand a motion to dismiss. Id. at *41-44. 

Given the procedural posture of the litigation, the Plaintiffs’ economic theory will be subjected to greater scrutiny at the class certification stage. Although in a somewhat different context, it is noteworthy that a similar economic theory was found to be inadequate to demonstrate class-wide injury in an antitrust wage suppression case involving registered nurses.  The Court in Fleischman v. Albany Medical Center, 2008 U.S. Dist LEXIS 57108, at *16-17 (N.D. N.Y. July 28, 2008), found that the theory presumed an “unrealistic degree of interchangeability in the nursing profession,” and rejected it.  

Lessons For Employers 

Not all agreements between or among employers not to hire each other’s employees violate the antitrust laws.  See e.g., Eichorn v. AT&T Corp., 248 F.3d 131 (3d Cir. 2007) (8 month agreement not to hire employees of an affiliate of the defendant that was sold to a purchaser did not violate the antitrust laws because the agreement was reasonable in scope and its primary purpose was to ensure the workforce continuity of the purchased entity). However, a no-hire agreement that is not ancillary to another business arrangement and is not limited in time and scope and designed to protect a legitimate business interest can create serious antitrust risks.

As class action lawyers assert claims on behalf of employees continue to branch into new vistas in the brave new world of class actions after Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541 (2011), we expect to see more activity in this area and resort to antitrust claims.