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Employment Law

Legal guidance - compliance - software

26 JAN 2012

Employer Non-Poaching Agreements In Silicon Valley– Restrictions On Employment Mobility Agreed Between U.S. High Technology Companies – A Kores V. Kolok For The 21st Century

Julian Wilson

The publication last week of the Joint Case Management Statement for today's hearing in the High-Tech Employee Anti-Trust Litigation Class Actions brought in the US District Court for the Northern District of California, in San Jose, reveals publicly for the first time some of the evidence which was gathered by the US Department of Justice's investigation into Anti-Competitive Employee Non-Solicitation Agreements between High Tech Companies.

 The DoJ investigation led to a civil antitrust complaint in the U.S. District Court for the District of Columbia and a settlement in September 2010 by which Adobe Systems Inc., Apple Inc., Google Inc., Intel Corp., Intuit Inc. and Pixar were prohibited from engaging in anti-competitive non-solicitation agreements which prevent soliciting, cold calling, recruiting, or competing for employees.

 As a result of the settlement, details of the non-poaching agreements which had arguably been made by some of the companies involved were not made public, but subpoenas in the Class Actions have resulted in disclosure of material collected by the DoJ including emails passing between some of the companies at senior management, and on occasion CEO level, describing agreements not to solicit or hire each other's employees.

 According to the Joint Case Management Statement, the material includes an email dated 28 May 2005 from Adobe's CEO, Bruce Chizen emailed to Apple's Steve Jobs forwarding an email from Adobe's Senior Vice President of Human resources to others at Adobe regarding "Recruitment of Apple Employees" stating:

 "Bruce and Steve Jobs have an agreement that we are not to solicit ANY Apple employees, and vice versa." 

 In England, non-poaching agreements between employers have long been found to be subject to the Restraint of Trade doctrine and prima facie unenforceable. Famously, in Kores Manufacturing Co. v. Kolok Manufacturing Co the courts struck down what was described as a "non-poaching agreement" between two companies engaged in high tech chemical process product manufacturing by which they agreed not to employ any person who had been an employee of the other during a prior period of five years. In Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. two members of the House of Lords expressed the view that Kores could best be explained as a case concerning an agreement contrary to the public interest.

 The Defendants to the US Class Actions contend that the material disclosed shows no overarching conspiracy but only bilateral business arrangements. This is rather reminiscent of the losing argument run in Kores for the employers that as only one other employer was bound by the agreement and there were many other potential employers in the same industry who were not affected by it, the agreement was not an unreasonable restraint of trade. The court declined the invitation to distinguish the case of Mineral Water Bottle Exchange and Trade Protection Society v. Booth in which a trade association, which had 179 members throughout the United Kingdom, had a rule that no member should employ an employee who had left the service of another member until two years had elapsed from the end of his employment. The rule was struck down by Chitty J. as being in unreasonable restraint of trade, because it could have the effect of preventing former employees of any member from finding new work within the industry in which they were skilled. See similarly Eastham v. Newcastle United Football Club Ltd in which the transfer and retention system in relation to the employment of professional footballers in the Football League, which operated to prevent poaching of players between clubs, was held to be subject to the restraint of trade doctrine and to be unenforceable as a result.

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