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Settlement is the largest employment lawsuit in the U.S. tech sector

Four top Fortune 500 tech firms -- Intel Corp. (INTC), Google Inc. (GOOG), Apple, Inc. (AAPL), and Adobe Systems Inc. (ADBE) -- agreed to a massive settlement in what is believed to be the largest public employment lawsuit settlement in the history of California's Silicon Valley.  

I. A Massive Settlement

Together the four firms will pay $324M USD (or roughly $5,050 USD per worker before lawyer fees) to a class of 64,000 tech employees who filed suit against these corporate giants over allegations of collusive non-hire agreements, agreements that the plaintiffs' lawyers argue violated federal antitrust laws and drove down wages.

Kelly Dermody, a lawyer at Lieff Cabraser Heimann & Bernstein, the firm representing the plaintiffs, hailed the settlement as a key win.  And it's not the first win in the noncompete hiring scandal.

employee poaching
Between 2005 and 2010 a number of tech companies reportedly entered into secret, collusive noncompete agreements that limited wages. [Image Source: Fistful of Talent]

Two other firms -- The Walt Disney Comp.'s (DIS) Pixar and business software provider Intuit Inc. (INTU) -- had already pledged an additional $20M USD over similar claims (with Pixar paying $9M USD and Intuit paying $11M USD).

The case had been set to go on trial next month.  Legal experts say had it gone to trial Google, Apple, Intel, and Adobe may have wound up paying far more.

The tech companies admit in the face of irreufutable evidence that the did enter into noncompete agreements over recruiting employees from each other.  But they argue that those agreements didn't drive down wages.  

II. Google's Schmidt Likely Fired HR Employee for Defying Anticompetitive Scheme

But a jury would likely be credulous of that argument, experts say, given the damning sound of emails from some of the executives involved.

For example the late Steve Jobs -- CEO and cofounder of Apple -- personally complained in an email to then-Google CEO Eric Schmidt after he caught wind that a Google recruiter had solicited one of his employees.  Eric Schmidt apologized and said the recruiter would be fired.  Steve Jobs forwarded the email to a top Apple human resources executive with an ASCII smileface.

Former Google CEO Eric Schmidt reportedly fired an employee for hiring an Apple employee
[Image Source: AP]

Another email between a Google HR director and Mr. Schmidt ended in a mutual agreement to cover up the practice to avoid getting sued.  The filing states:

Schmidt responded that he preferred it be shared 'verbally, since I don't want to create a paper trail over which we can be sued later?'

The court record noted that the HR director agreed.

In court such views would likely turned the jury against the tech executives, given that many of the documents paint a clear picture that indicates the tech executives may have known what they were doing was illegal and purposefully tried to cover it up.

The case would have been tried before a familiar face -- Judge Lucy Koh (who presided over the first trial in Apple's lawsuit against Samsung Electronics Comp., Ltd.(KRX:005930) (KRX:005935)).  The case was scheduled for May in the U.S. District Court for the Northern District of California in San Jose, Calif.

But the tech firms had a trump card of their own.  They threatened to employ a tactic that could have made it so jurors never got to hear the case at all.  They were planning to appeal it to a federal appellate court, arguing the class was invalid.  If they could ban the plaintiffs from acting as a class, they could much easier beat down any individuals who would likely lack the costly legal representation need to beat the assembled legion of corporate lawyers.

Judge Lucy Koh
Federal Judge Lucy Koh

In other words, both sides ran a risk if they pushed on ahead through the courts.  Instead they decided to settle.

The plaintiffs and lawyers for the companies involved will show up in court on May 27, following a similar hearing to approve the Pixar and Intuit deals next week.  At the hearing the two parties will disclose some terms of their settlement, including -- potentially -- how much each company is paying.  Typically, companies divide costs in this kind of case by the percentage of employees from that company in the class.

III. No More Noncompete

The U.S. Department of Justice (DOJ) already probed this possible illegal anticompetitive arrangement.  In 2010 Google, Apple, Intel, and Adobe agreed to drop their noncompete pacts, to prevent antitrust fines.

Some companies were opposed to the practice from the start.  Facebook, Inc.'s (FB) Chief Operating Officer Sheryl Sandberg publicly criticized a 2008 offer from Google to avoid poaching each other's employees.  But perhaps the harshest criticism came from the now-defunct Palm.

Steve Jobs angry
Steve Jobs made the bold move of threatening to sue Palm if it didn't go along with his "likely illegal" scheme. [Image Source: Telegraph UK]

Apple's Steve Jobs tried to bully Palm into no longer poaching Apple employees, by threatening to file suit.  But Palm's Chief Executive Officer at the time, Edward Colligan, was unintimidated, correctly noting it was Mr. Jobs who was likely doing something illegal.  He told his foe:

Your proposal that we agree that neither company will hire the other’s employees, regardless of the individual’s desires, is not only wrong, it is likely illegal.

Looks like he was right.  Now Apple and those who engaged in similar practices (including Google) are paying big time, even as they continue to insist they did nothing wrong.

Sources: Lieff Cabraser Heimann & Bernstein [press release], Reuters

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I would opt out...
By Marlin1975 on 4/25/2014 9:57:41 PM , Rating: 3
Seems to low IMO.

Based on the e-mails that have leaked out so far I would opt out of the settlement and sue directly. The probability of getting more than 5k BEFORE lawyer fees seems much more likely.

That and most will probably be to lazy and/or dumb to opt out. So larger individual settlements would probably happen since there would not be that many.

RE: I would opt out...
By Khato on 4/26/2014 12:25:30 AM , Rating: 3
It's tempting to do so, but actually pursuing it outside of the class action would be annoying to say the least.

Sadly, as usual, the only real winners here are the lawyers... which is why they're quite happy to settle. If they actually went through with the case and won the payout to the employees would likely be an order of magnitude higher, but the lawyers? Nope, it makes just as much if not more sense for them to settle now and move on to the next case. Grumble.

RE: I would opt out...
By sorry dog on 4/26/2014 11:00:29 AM , Rating: 2
It does seem likely here that attorneys here had a much greater incentive to settle. However, I'd like the point out that as bad a rap that plaintiff lawyers and high tort awards get, this is exactly the situation that demonstrates it is a necessary evil. As it is this award, while not chump change, will be considered an acceptable cost of business by these firms. Say we had tort reform and the award size are much smaller, then there would be next to no deterrent for this type of collusion except for threat of employee collusion which is legalized in the form of unions. Those that want tort reform tend to hate unions even more so.

On another note, I wonder how many other examples of corrupt behavior we'll find out about Mr. Jobs. I really just can't understand how this guy achieved such reverence. Respect, fine. Techno culture hero, not unless that society reveres idea theft, back stabbing, and win at all costs attitudes... Oh wait... nevermind...

RE: I would opt out...
By Piiman on 4/26/2014 11:13:20 AM , Rating: 2
Don't the lawyers get a % of the settlement? If so they would have an incentive to carry on and not settle.

RE: I would opt out...
By MightyAA on 4/28/2014 10:36:30 AM , Rating: 2
Not true. Generally, they only get paid if they win. So if they are set up in the 20-50% fee range (which isn't abnormal considering the risk they carry), do the math on that settlement. It's a lot. Also, going to court requires a ton more time like depositions of everyone, so that means a less profitable case for the attorney.

The ones who sued don't really get a real settlement, however if they win, recruiters can court and they have the chance to accept higher paid positions elsewhere. So the companies are going to have to fork out more money to get the cream of the crop and hold onto them rather than rely on some illegal agreement where no one would try to seduce them away.

they got off easy
By 8steve8 on 4/26/2014 2:33:18 AM , Rating: 2
everyone thinks these companies are gods gift.. but they are like any other firm, maybe worse...

they want the best employees, who are going to work the most, for the least amount of money...

i'm not saying they are evil.. but they are looking out for their own interest... not the employees'

RE: they got off easy
By Cheesew1z69 on 4/26/2014 9:40:11 AM , Rating: 2
but they are looking out for their own interest... not the employees
You don't say! /s

RE: they got off easy
By 8steve8 on 4/26/2014 10:35:31 AM , Rating: 2
believe it or not, for these employers, that's news to many people.

the settlement seems so tiny, these ultra-rich companies were colluding to decrease options for their employees, actively manipulating how a free market works... to the precise determent to their own employees.

these are the same companies that get heralded as the best places to work, the best employers, and they generally have a reputation of doing the right thing by their own kin...

apple particularly threatened other companies with litigation on unrelated matters, unless they adhered to the agreement.

RE: they got off easy
By sgestwicki on 4/26/2014 11:24:39 PM , Rating: 2
I'm also surprised at how small the settlement is. Didn't Apple just post 10 billion dollars in profit (not revenue but actual profit) for the quarter? That is just one of the company's in this settlement so I am sure it means absolutely nothing to them.

By futrtrubl on 4/26/2014 3:28:11 AM , Rating: 2
I do not think that means what you think that means.

RE: credulous
By puter_geek_00 on 4/29/2014 9:35:19 AM , Rating: 2

Chicken feed
By cactusdog on 4/26/2014 4:50:56 AM , Rating: 2
This is why you have to regulate the free market. If you don't, they collude and abuse employees, consumers, the environment etc. For every story we hear about, there would be 10 we don't hear about.

RE: Chicken feed
By sgestwicki on 4/26/2014 11:17:34 PM , Rating: 2
I highly doubt there are too many people who do not want any government regulation (which is known as anarchy). I also think that there are very few people that want complete government control. The question everyone and every country deals with is where should we be in between those two extremes. I personally can see the advantages of the scale tipping in either direction but I can also see problems with each side too.

Next ... H-1B visa's ???
By M'n'M on 4/25/2014 11:16:31 PM , Rating: 3
Any chance somebody will sue someone (or the Govt) over the abuse of H-1B visa's ?

(hint - operative word is fat)

Violate the law = GO TO JAIL
By tayb on 5/2/2014 1:16:00 PM , Rating: 2
These fines amount to absolutely nothing for these companies.

Send the executives to jail. Next time they consider colluding to violate the law they might reconsider the consequences. A tiny fine does not concern them.

"I modded down, down, down, and the flames went higher." -- Sven Olsen

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