Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Animation companies allegedly conspired to suppress employee wages with non-solicitation agreements, (Nov 25, 2014)

By Linda O’Brien, J.D., LL.M.

Motion picture visual effects and animation companies engaged in a conspiracy to suppress the compensation of their employees by entering into non-solicitation agreements and agreeing on salary ranges, according to a class action complaint filed in the federal district court of San Jose, California (Phan v. DreamWorks Animation SKG, Inc., November 20, 2014).

DreamWorks, Pixar, Lucasfilm, The Walt Disney Company, Digital Domain, ImageMovers, and Sony are in the business of creating visual effects and animation for motion pictures, which requires the labor of thousands of skilled animators, graphic artists, software engineers, and other technical and artistic workers. Van Phan was a senior animator at Digital Doman and animator, digital trainer, and layout artist at DreamWorks.

The complaint alleges that—in a properly functioning competitive labor market—companies would compete for these highly skilled employees by soliciting current employees from other companies. A recruiting method, referred to as “cold calling,” is a chief competitive tool used by companies to recruit employees. When an employee receives a cold call from a rival company with an offer that exceeds his current compensation, the employee can either accept the offer or negotiate increased compensation from his current employer. In either instance, the employee has the opportunity to gain increased compensation and mobility.

In the 1980s, the executives of Lucasfilm and Pixar reached an express agreement to (1) refrain from actively soliciting or “cold calling” each other’s employees, (2) notify the other company when making an offer to an employee of the other company, and (3) decline to increase its offer if the current employer made a higher counteroffer. Lucasfilm and Pixar eventually formed similar non-solicitation agreements with DreamWorks, The Walt Disney Company, Digital Domain, ImageMovers, and Sony, the complaint charges.

The defendants’ conspiracy was not limited to the non-solicitation agreements, according to the plaintiff. The most senior human resource and recruiting personnel met routinely to discuss job titles and internal salary plans, and to participate in an industry compensation survey. At least once per year, the defendants met to discuss the guidelines and criterion of a compensation survey. The survey reflected wage and salary ranges for the defendants’ artistic and technical employees, which was delineated by position and experience level. In addition, the defendants also met at social gatherings and industry events throughout the year. The meetings provided opportunities for the defendants to develop and execute their anticompetitive agreements, the plaintiff maintained.

According to the complaint, any applicable statute of limitations has been tolled by as a result of the defendants’ fraudulent concealment of their conspiracy. The plaintiff could not have discovered through the exercise of due diligence of the existence of the conspiracy until late 2010 when the U.S. Department of Justice revealed that its investigation into non-solicitation agreements and filed a complaint against visual effects and animation companies Lucasfilm and Pixar. The defendants affirmatively and fraudulently concealed their illegal conspiracy to avoid detection by communicating by phone, email and/or in person meetings. Moreover, the defendants attempted to justify their conduct with incomplete, misleading, and false explanations that were designed to disguise the conspiracy.

The lawsuit asserts claims for violations of Section 1 of the Sherman Act and California’s Cartwright Act and Unfair Competition Law. The action seeks declaratory and injunctive relief, treble damages, pre- and post-judgment interest, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 5:14-cv-05150.

Attorneys: Steven N. Williams (Cotchett, Pitre & McCarthy), Daniel E. Gustafson (Gustafson Gluek PLLC), Joseph W. Bruckner (Lockridge Grindal Nauen PLLP), and Kenneth A. Wexler (Wexler Wallace LLP) for Van Phan.

Companies: DreamWorks Animation SKG, Inc.; Pixar; Lucasfilm Ltd., LLC; The Walt Disney Company; Digital Domain 3.0, Inc.; ImageMovers LLC; ImageMovers Digital; Sony Pictures Animation; Sony Pictures Imagesworks, Inc.

News: Antitrust CaliforniaNews