Tech staff take Silicon Valley giants to court over alleged pacts to limit pay
Lawsuit claims companies colluded in 'no poach’ deals to suppress salaries
When Silicon Valley’s technology giants enter the court room, it is usually to battle one of their rivals.
But next month, Google, Apple, Intel and Adobe will be in the dock to face the same opponent.
A group of technology executives is suing the companies for alleged collusion to suppress their wages, after they signed a series of “no-poach” pacts barring them from recruiting each other’s staff.
The companies, whose collective value tops $890bn (£530bn), could be forced to pay handsomely to compensate them for the losses, but they are likely to be far more worried about the details the case will expose.
A trove of documents lodged with the court shine a potentially embarrassing light on the way the tech giants operate – especially Apple, whose former chief executives warned rivals that there would be repercussions if they did not sign up to pacts.
According to one email, sent by Google’s co-founder, Sergey Brin, to his staff, Apple’s then chief executive, the late Steve Jobs, phoned him personally to warn the web search company off recruiting Apple’s employees.
Mr Jobs told him, “If you hire a single one of these people, that means war,” Mr Brin wrote in a memo to his team in February 2005. In his view, Mr Jobs was being “just kind of crazy”.
In a separate incident, Mr Jobs warned Edward Colligan, the former chief executive and president of gadget maker Palm, that Apple could sue the company for infringing its patents if it did not sign up to his terms. On another occasion, he told Adobe that Apple would launch a raid on its staff if Adobe did not agree to the truce.
The threats have echoes of another row between Google and Apple, which was going on around the same time, and was only made public this year in a patent battle between Apple and Samsung. According to that case, which is still ongoing, Apple promised to wage a “holy war” against smartphone makers who used Google’s Android operating system.
But while Apple appears to have pursued the no-poach pacts more aggressively than other companies, it was not the only instigator. Between 2005 and 2010, Google struck near-identical deals with Intel and Intuit, and Eric Schmidt, the company’s former chief executive and now chairman, warned that the company would stop using any recruitment firm which called into one of those two companies.
Facebook was alone in resisting the no-poach pacts. Intuit chief Bill Campbell tried to pull the social platform into the circle, but Facebook’s chief operating officer, Sheryl Sandberg, said in documents she resisted their friendly request.
For those that joined, their motives were clear. Silicon Valley’s biggest players may pay their staff handsomely, but in the high-stakes technology business, the high-flying candidates whose expertise make or break a product, can easily justify the expenditure.
Tit-for-tat poaching would create a merry-go-round of talent and steadily ratchet salaries upwards. As Edward Catmull, Pixar’s president, admitted in his deposition, it “messes up the pay structure”.
The problem had been plaguing the major players for some time before they set pen to paper. Meg Whitman, former chief executive of eBay who now heads Hewlett-Packard, told Mr Schmidt: “Google is the talk of the Valley because [it was] driving up salaries across the board.”
But while the truces made a lot of sense for the companies involved, it damaged the prospects of their employees.
Around 100,000 staff have signed up to the class-action lawsuit, demanding that the companies hand over $9bn to cover the cost of the wages they have lost.
They claim the pacts amounted to a broad “conspiracy” – something the tech companies deny.
The businesses do not expect the final bill to reach anything like this, but they are fully aware of the reputational cost of the row. They tried and failed to have the case thrown out of court, and to ensure there was no incriminating evidence.
It is clear from emails that at least some of them clearly understood the legal problems associated with a pan-industry, no-poach deal. Paul Otellini, chief executive of Intel, was keen to keep the issue off people’s radar, telling a colleague that there was a “handshake 'no recruit’ between Eric [Schmidt] and myself. I would not like this broadly known.”
In another email, Mr Schmidt told a member of his team to discuss the issue “verbally since I don’t want to create a paper trail over which we can be sued later.” Unfortunately for Google, that instruction was ignored.