One focus of this blog is how an employer’s use of non-compete agreements often runs afoul of California’s Business and Professions Code section 16600. Generally, the employer finds that its “non-compete” agreement will be held unenforceable by a court should it seek to enforce one against a former employee. But what can happen when one employer “agrees” with another employer not to recruit or hire each other’s employees?

On November 16, 2012, the U.S. Department of Justice and California’s Attorney General filed separate lawsuits against eBay, Inc. alleging violation of antitrust laws arising out of such an agreement. (The State of California’s lawsuit also names Intuit, Inc. as a co-conspirator.) The lawsuit arises out of an investigation conducted by the U.S. Department of Justice in 2009-10 into “no-hire” arrangements between high-tech firms in Silicon Valley.

The complaints allege that between 2006-2009, eBay and Intuit had a “handshake” agreement that they would not recruit or hire each other’s employees. This alleged agreement arose out of a “war for talent” that Silicon Valley firms experienced while competing for a limited number of employees with highly specialized knowledge, skills and experience in the technology industry. The “handshake” agreement was apparently the subject of several emails between eBay and Intuit executives that are cited in the complaints. While the agreement appears to initially have begun as a no-recruiting policy, it apparently morphed into a “no-hire” agreement, even when an applicant (employed by one of the companies) approached the other for employment unsolicited. The complaints allege that the agreement between eBay and Intuit harmed the market for these employees by limiting their job mobility and “affected employees’ ability to secure better compensation, benefits, and working conditions.”

Similar lawsuits were filed by the U.S. Department of Justice in 2010 against Adobe Systems, Inc., Apple, Inc., Google, Inc., Intel Corporation and Pixar. Those lawsuits were apparently resolved when the companies agreed not to engage in further “no-hire” agreements. (A separate class action civil lawsuit brought by affected employees is still pending against these companies.) eBay is alleged to have halted its “no-hire” agreement with Intuit in or about 2009 when it learned of the federal government’s investigation into such agreements.

Employers are again reminded to proceed with caution when considering whether and how to restrict a former employee’s ability to compete.