Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Microsoft charged with conspiring to suppress compensation through non-solicitation agreements, (Oct 17, 2014)

By Linda O’Brien, J.D., LL.M.

Microsoft allegedly engaged in restraint of trade by conspiring with other technology companies to fix wage and salary ranges and restrict competition for the services of employees through the use of anti-solicitation agreements, according to a complaint filed in the federal district court of San Jose, California (Ryan v. Microsoft Corporation, October 16, 2014).

Microsoft is a U.S. multinational corporation that develops, manufactures, licenses, supports, and sells computer software, consumer electronics, and personal computers and services. Founded in 1975, Microsoft has grown to dominate the personal computer operating system market. Deserae Ryan was employed by Microsoft as a Senior Product Manager from 2007 to 2012. Trent Rau worked for Microsoft from 2006 to 2010 as a Lead Systems Engineer Senior.

The complaint states that, in 2007, senior executives from Microsoft entered into express anti-solicitation agreements with numerous other companies in the technology industry. Such agreements precluded the technology companies from trying to recruit each other’s employees. Additionally, Microsoft allegedly entered into an agreement with Google not to pursue manager-level candidates from one another for product, sales, or administrative positions. The restricted hiring agreement effectively stifled competition for skilled managerial labor, the plaintiffs claim.

In a competitive labor market, parties to the anti-solicitation agreements would have competed for employees through the use of a recruiting method called “cold calling,” whereby companies solicit current employees of other companies. Cold calling serves as an essential and effective recruiting method because the solicited employees are often not responsive to other recruiting strategies but can be lured by promises of higher salaries, bonuses, and better benefits, the complaint alleged.

The intended and actual effect of these unlawful agreements was to fix and suppress employee compensation, impose unlawful restrictions on employee mobility, deprive employees of competitive wages, and hinder employees’ abilities to advance their careers at other companies.

According to the complaint, the restrictions on cold calling effectively precluded the spread of information regarding certain positions with certain companies and limited an employee’s leverage when negotiating salary with his or her current employer. However, the agreements allegedly benefited the companies by alleviating pressure to retain good employees by paying higher salaries and suppressing wages, since rivals were not actively soliciting employees with promises of higher salaries and improved benefits.

In 2009, the U.S. Department of Justice Antitrust Division (DOJ) investigated several technology companies, including Google, regarding their conspiracy to refrain from soliciting one another’s employees. As a result of the investigation, Google entered into a settlement with the DOJ that enjoined the company from making such non-solicitation agreements. The conspiracy had been conducted in secret and the agreements were not publicly disclosed until May 2013 when the identities of the companies who were parties to the anti-solicitation agreements became available. The plaintiffs did not have actual or constructive notice until May 2013 when they learned that Microsoft was a party to the non-solicitation and restricted hiring agreements, the complaint stated.

The plaintiffs assert 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, restitution, disgorgement of profits, pre- and post-judgment interest, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 5:14-cv-04634.

Attorneys: David R. Markham, Peggy Reali, Janine Menhennet, and Maggie K. Realin (The Markham Law Firm) for Deserae Ryan and Trent Rau.

Companies: Microsoft Corporation

News: Antitrust CaliforniaNews