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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





"We shipped it on Saturday. Then on Sunday, we rested." -- Steve Jobs on the iPad launch



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