Worker Mobility in Silicon Valley: The End of the “Handshake” No-Hire

| Zuckerman Spaeder Team

As long-standing readers of Suits by Suits know, California is at the forefront of the “state-by-state smackdown” regarding covenants not to compete, having prohibited essentially all such clauses by statute.  (You can refresh your recollection by reviewing our discussion of California law, here.)

Consequently, one of the arguments deployed by other states looking to restrict or ban noncompetes is that the business climate created in California encourages worker mobility, and that climate in turn is attractive to the technology sector (and in particular, to technology start-ups), who depend upon “poaching” away top talent that may be underpaid at a competitor.  You can read these arguments in more depth here (part 1), here (part 2), and most recently here (part 3).

The common thread that runs through these arguments is that California encourages worker mobility, and that mobility, in turn, is good for Silicon Valley.  The argument has some appeal.

However, we’ve learned that noncompetes are not the only thing that can affect worker mobility in Silicon Valley.  A year ago, we told you about the alleged “handshake” agreement between online retailer eBay and software giant Intuit not to “poach” away each others’ employees that was being challenged by the U.S. Department of Justice and the California Attorney General.  A few weeks ago, we reported that lawsuit had settled; eBay and Intuit agreed to the entry of a five-year injunction prohibiting the practice and a rather modest $3.75 million in damages.  (You can read the full DOJ press release here.)

As it turns out, eBay and Intuit weren’t alone in trying to hold on to their top Silicon Valley talent; similar allegations were made against some of the largest and highest-profile companies in the state, including Apple and Google, although those lawsuits were brought as class-action complaints by former employees themselves and not by the government.  Now we’ve just learned that Apple, Google, Intel and Adobe have collectively agreed to settle that lawsuit for $324.5 million, which will pay out between $2,000 and $8,000 to each of the 64,000 class members.

These results are interesting, because no-hire agreements are not per se illegal.  See, e.g., Eichorn v. AT&T Corp., 248 F.3d 131, 143 (3d Cir. 2001) (citing cases).  Indeed, such agreements are commonplace in the context of mergers and acquisitions, where no-hire provisions are often crucial to secure the sale of a subsidiary where the buyer expects workforce continuity.  Id. at 145-46.  As a result, companies such as Google have maintained publicly that they did nothing wrong:  On its Pubilc Policy Blog, Google admitted to the handshake agreement, but suggested that fell short of a full “no-hire”:

“Google grew by more than 16,000 people between 2005 and 2009 -- a five-fold increase in the size of our company. In fact, we were hiring so fast that on average 40 new recruits were joining every day by 2007. At the same time, we were also building partnerships with other technology companies to help improve our products and services.

In order to maintain a good working relationship with these companies, in 2005 we decided not to ‘cold call’ employees at a few of our partner companies. Our policy only impacted cold calling, and we continued to recruit from these companies through LinkedIn, job fairs, employee referrals, or when candidates approached Google directly. In fact, we hired hundreds of employees from the companies involved during this time period.”

Now that Google and the remaining defendants have settled, we probably won’t find out whether or not this limited no-“cold call” policy would have survived either antitrust scrutiny by the DOJ or civil liability in the pending class action lawsuit.  What we do know is that California’s technology workforce just got a little more mobile than it was before.  And for the rest of us, the tale of workplace mobility in Silicon Valley continues to be instructive as to what sort of agreements are and are not permissible by and between employers and their employees.

Information provided on InsightZS should not be considered legal advice and expressed views are those of the authors alone. Readers should seek specific legal guidance before acting in any particular circumstance.

As the regulatory and business environments in which our clients operate grow increasingly complex, we identify and offer perspectives on significant legal developments affecting businesses, organizations, and individuals. Each post aims to address timely issues and trends by evaluating impactful decisions, sharing observations of key enforcement changes, or distilling best practices drawn from experience. InsightZS also features personal interest pieces about the impact of our legal work in our communities and about associate life at Zuckerman Spaeder.

Information provided on InsightZS should not be considered legal advice and expressed views are those of the authors alone. Readers should seek specific legal guidance before acting in any particular circumstance.