Were Silicon Valley companies artificially keeping wages lower by having an agreement not to poach employees from competitors? This issue came to a head in 2010 when the Department of Justice settled an antitrust case with Adobe, Pixar, Google, Apple, Inuit, and Intel. The DOJ alleged that the companies had agreement not to poach each other’s employees, and that these agreements “reduced their ability to compete for high tech workers and interfered with the proper functioning of the price-setting mechanism that otherwise would have prevailed in competition for employees.” In the settlement with the DOJ, the companies agreed to discontinue the use of any agreements that would prevent any company from poaching employees from a competitor.

After knowledge of the DOJ case spread, a group of employees filed a class action lawsuit seeking damages by alleging that the companies violated California’s Cartwright Act and the Unfair Competition Law. The case is currently pending in California’s Federal Northern District Court. The allegations made in the DOJ case and in the class action litigation argue that the companies had a “do not call” list. Under this agreement the companies agreed not to cold call each other’s employees. There have been emails disclosed in the litigation where Steve Jobs emailed Eric Schmidt asking Google to stop its employee from soliciting an Apple employee. When Schmidt informed the Google employees to stop, the Google employees responded that this was inappropriate, and the offender would be fired within the hour.

This litigation shows how valuable a company’s employees are to its productivity and how hard it is to retain employees in competitive industries. It also shows the relatively few methods employers have to retain top talent. Generally speaking, noncompetition agreements are unenforceable in California, and the allegations made in this litigation show that agreements not to poach competitor’s employees can also be challenged as violating anti-trust and unfair competition laws.