November 21, 2012
Last week, the Wall Street Journal reported that the Department of Justice has sued eBay alleging that the tech giant violated the Sherman Act when it signed an agreement with software provider Intuit Inc. in which the companies agreed that they would not recruit from the employee talent pools of the other company. On the same day, the California Attorney General also sued eBay for violating similar antitrust state laws.
EBay, with headquarters in San Jose, California, and Intuit, with headquarters in Mountain View about a dozen miles away, have historically competed to hire skilled computer engineers and programmers to meet the needs of their online and software businesses. Other local technology employers like Apple, Google, Adobe, and Walt Disney also face stiff competition for the cream of the tech crop.
And in fact, the DOJ’s complaint alleges that eBay and Intuit may have had a “handshake” agreement that neither employer would hire away talent from the other so that each could be assured that they could retain employees and keep wages for top talent in check. And as a result of this agreement, the DOJ’s complaint also alleges that wages, benefits and other employee perks were driven down since employees had fewer alternative job prospects.
When hiring practices violate the law
This is not the first time that the Department of Justice has gone after technology employers for recruiting agreements that are anticompetitive in nature. In 2010, the DOJ sued Intuit, Adobe, Apple, Google, Intel, and Pixar for similar employment practices. (Intuit was not named as a defendant in the recent lawsuit against eBay since it had already been named as a defendant in 2010.) The DOJ settled with the companies after they all agreed to put an end to the practice of blanket prohibitions against recruiting each others’ employees.
An eBay spokesperson issued a statement saying it would “vigorously defend itself” against the DOJ and California Attorney General’s most recent lawsuits. The DOJ is requesting, among other things, a declaration that eBay and Intuit’s agreement violates section 1 of the Sherman Act, a permanent injunction on the alleged anticompetitive recruiting practices, and punitive damages.
As a point of practice for HR professionals and those in the corporate legal department tasked with drafting employment contracts, the DOJ’s 2010 settlement with Intuit, Adobe and the other tech giants did not bar the use of no-direct solicitation provisions completely. But the parties can only use no-direct-solicitation provisions in future employment or severance agreements under certain circumstances, including when the provisions are in writing, narrowly tailored, and specific with regard to employee identities and provision termination dates, among other factors. (Search WestlawNext’s Employment Sample Agreements to review thousands of examples of employment agreements used by businesses and filed with the Securities and Exchange Commission.)