November 29, 2012
In the latest in a series of enforcement actions challenging certain employment agreements, the US Department of Justice (DOJ) has brought suit against eBay, Inc. (eBay), claiming that it violated antitrust laws by entering into an agreement not to recruit or hire employees of Intuit Inc. (Intuit).1 The California attorney general filed a similar complaint, claiming eBay’s “handshake” agreement with Intuit violated California antitrust statutes.2 While both suits ask for injunctive relief, the California action also seeks to recover damages. No settlement has been reached, and eBay has stated that it intends to defend itself against the allegations.
On November 16, 2012, the DOJ filed a complaint against eBay alleging that it violated Section 1 of the Sherman Act by (a) agreeing with Intuit not recruit each other’s employees, and (b) agreeing not to hire Intuit employees, even those who sought employment at eBay on their own initiative. As noted in the complaint, both eBay and Intuit are direct competitors for specialized computer engineers and scientists, among other types of employees. The DOJ alleges that the agreement represents a per se violation, suppressing competition on its face by limiting employees’ ability to secure better compensation, benefits, and working conditions. Alternatively, the DOJ alleges that the agreement would fail to withstand a rule of reason analysis, as it had no legitimate procompetitive justification.
Specifically, the DOJ alleges that senior executives at both companies, including eBay’s CEO and Intuit’s founder, entered into a “handshake” agreement no later than 2006 and were intimately involved in monitoring and enforcing the agreement, which was in effect until at least 2009. According to the complaint, the agreement began as a limited no-solicitation pact focused on high-level executives. However, the complaint goes on to allege that eBay ultimately agreed to a more expansive no-solicitation and no-hire arrangement covering a wider group of employees. This was in large part to assuage the concerns of Intuit’s founder, who also served as a member of the eBay Board of Directors and had complained of eBay’s hiring tactics.
The DOJ seeks a permanent injunction preventing eBay from adhering to or enforcing the agreement with Intuit and also from entering into any similar agreements that unreasonably restrict competition for employees. As described below, Intuit is not named as a co-defendant, because it is already subject to an earlier court order preventing it from entering into any agreement that improperly limits competition for employee services.
Earlier Enforcement Actions
This DOJ complaint against eBay flows from the same investigation that led to an enforcement action and subsequent settlements issued in September 2010 involving six prominent high-tech companies, including Intuit, in United States v. Adobe Systems, Inc. et al.3Asserting a per seSherman Act violation, the DOJ there similarly alleged that the target companies entered into bilateral agreements that prevented the free flow of labor. As part of the settlement, the DOJ outlined terms of no-solicitation agreements that are more likely to be found legal under a rule of reason analysis, including limitations on types of employees affected and time duration.4 Notably, the agreements challenged in 2010 only prevented the companies from initiating contact with each other’s employees and, unlike the alleged eBay agreement, did not apply in instances when the employee initiated contact.
Shortly thereafter, in December 2010, the DOJ brought another action, this time against Lucasfilm Ltd. (Lucasfilm) and Pixar, in United States v. Lucasfilm Ltd.5 Similar to the allegations against eBay, the Lucasfilm-Pixar agreement went beyond no-solicitation restrictions and included restraints on counteroffers and the required notification of the other company in certain potential employment situations. The DOJ noted that such additional conduct is more pernicious than a no-solicitation agreement alone.
As in the DOJ complaint, the California attorney general alleges that eBay’s no-solicitation and no-hire agreement violates the Sherman Act. The California complaint also alleges violations of California’s Cartwright Act and unfair competition law. According to the California attorney general, the relevant state law has stronger proscriptions against anticompetitive conduct than federal law. Notably, California seeks civil penalties for each violation of its unfair competition law.
- As with the Adobe Systems and Lucasfilm cases, the DOJ alleges that eBay’s agreement with Intuit is facially anticompetitive and thus a per se violation of the Sherman Act. This line of enforcement action indicates that the DOJ is likely to continue to view many agreed-upon restraints on employers’ ability to recruit and hire as per se violations, especially when no-hire agreements are present or additional restrictions are put on employers that go beyond no-solicitation.
- Further, as these cases demonstrate, even no-solicitation agreements may be challenged as per se illegal. However, no-solicitation agreements that are ancillary to a legitimate procompetitive purpose and are reasonably necessary to achieve procompetitive benefits are more likely to be analyzed under the rule of reason, and hence more likely to be found legal. Also, such agreements that are limited to a specific group of employees and have specific termination dates are less likely to be challenged as per se violations.
- Finally, federal and state antitrust officials worked together closely during each agency’s investigation. California’s suit is complementary to the DOJ suit in that California is seeking monetary damages in addition to injunctive relief. Higher levels of cooperation between federal and state officials are likely to continue in this area, particularly in highly visible industries..
- See DOJ press release, “Justice Department Files Lawsuit Against eBay Inc. Over Agreement not to Hire Intuit Inc. Employees,” dated November 16, 2012, available at http://www.justice.gov/atr/public/press_releases/2012/288865.htm, as well as the DOJ complaint available athttp://www.justice.gov/atr/cases/f288900/288918.pdf.↵
- See California Justice Department press release, “Attorney General Kamala D. Harris Files Lawsuit Against eBay for Anticompetitive Hiring Agreement,” dated November 16, 2012, available at https://oag.ca.gov/news/press-releases/attorney-general-kamala-d-harris-files-lawsuit-against-ebay-anticompetitive, as well as the California Justice Department complaint available athttps://oag.ca.gov/system/files/attachments/press_releases/eBay%20filedcomplaint_0.pdf.↵
- See Weil Antitrust/Competition Perspectives article, “Recent Cases Caution Companies That Employment Practices May Be Scrutinized Under the Antitrust Laws,” dated January 18, 2011, available at http://antitrust.wpengine.com/articles/recent-cases-caution-companies-that-employment-practices-may-be-scrutinized-under-the-antitrust-laws/.↵
- See DOJ Competitive Impact Statement, United States v. Adobe Systems Inc., et al., dated September 24, 2010, available athttp://www.justice.gov/atr/cases/f262600/262650.htm.↵
- Weil Antitrust/Competition Perspectives, “Recent Cases Caution Companies,” January 18, 2011.↵