Home » Apple » Apple and Google’s wage-fixing cartel involved dozens more companies, over one million employees

Apple and Google’s wage-fixing cartel involved dozens more companies, over one million employees

25 March 2014

Meryl, who sent this tip, pointed out a connection between Apple’s behavior in the Price-Fix Six price-fixing antitrust suit and the wage-fixing cartel.

From PandoDaily:

Back in January, I wrote about “The Techtopus” — an illegal agreement between seven tech giants, including Apple, Google, and Intel, to suppress wages for tens of thousands of tech employees. The agreement prompted a Department of Justice investigation, resulting in a settlement in which the companies agreed to curb their restricting hiring deals. The same companies were then hit with a civil suit by employees affected by the agreements.

This week, as the final summary judgement for the resulting class action suit looms, and several of the companies mentioned (Intuit, Pixar and Lucasfilm) scramble to settle out of court, Pando has obtained court documents (embedded below) which show shocking evidence of a much larger conspiracy, reaching far beyond Silicon Valley.

Confidential internal Google and Apple memos, buried within piles of court dockets and reviewed by PandoDaily, clearly show that what began as a secret cartel agreement between Apple’s Steve Jobs and Google’s Eric Schmidt to illegally fix the labor market for hi-tech workers, expanded within a few years to include companies ranging from Dell, IBM, eBay and Microsoft, to Comcast, Clear Channel, Dreamworks, and London-based public relations behemoth WPP. All told, the combined workforces of the companies involved totals well over a million employees.

. . . .

Although the Department ultimately decided to focus its attention on just Adobe, Apple, Google, Intel, Intuit, Lucasfilm and Pixar, the emails and memos clearly name dozens more companies which, at least as far as Google and Apple executives were concerned, formed part of their wage-fixing cartel.

. . . .

A confidential Google memo (above, left) titled “Special Agreement Hiring Policy,” dating from November 2006, divides the company’s wage-fixing agreements into two categories: “Do Not Cold Call” and “Sensitive Companies.” Below that, the Google memo offers a brief chronology and list of companies:

The following companies have special agreements with Google and are part of the “Do Not Cold Call” list.

The first entry marks the beginning of Google’s participation in the wage-suppression scheme:

Effective March 6, 2005:

• Genentech, Inc.
• Intel Corporation
• Apple Computer
• Paypal, Inc.
• Comcast Corporation

Until now, neither Paypal (owned by eBay), Comcast nor Genentech have been publicly mentioned as part of the wage-suppression cartel.

. . . .

The “effective date” of Google’s first wage-fixing agreements, early March 2005, follows a few weeks after Steve Jobs threatened Google’s Sergey Brin to stop all recruiting at Apple: “if you hire a single one of these people,” Jobs emailed Brin, “that means war.”

Jobs threatened Brin and Google on February 17, 2005; nine days later, Apple’s VP for Human Resources sent out an internal email to Apple recruiting,

All,

Please add Google to your “hands-off” list. We recently agreed not to recruit from one another so if you hear of any recruiting they are doing against us, please be sure to let me know.

Please also be sure to honor our side of the deal.

That was February 26; on March 6, Google’s identical non-solicitation agreement with Apple became “effective.”

This timeline is important to establish because it demonstrates precisely what makes this scheme illegal: secret cross-agreements between two or more parties to fix wages in the labor market, at a time when tech engineer wages were soaring, threatening profits.

. . . .

From that point on, the secret cartel expanded. Later that year, in September 2005, eBay CEO Meg Whitman called Schmidt complaining that Google’s recruiters were hurting profits and business at eBay. Schmidt emailed Google’s “Executive Management Committee”—the company’s top executives— summarizing Whitman’s, and “the valley”’s view that competing for workers by offering higher pay packages was “unfair”:

. . . .

From: Eric Schmidt
Sent: Wednesday, September 7, 2005 10:52 PM
Subject: Phone call from Meg Whitman

DO NOT FORWARD

Meg called to talk about our hiring practices. Here is what she said:

1. Google is the talk of the valley because we are driving up salaries across the board. People are just waiting for us to fall and get back at us for our “unfair” practices now.

2. Our recruiting practices are “zero sum” and it appears that somewhere in Google we are targeting EBay to “hurt them” and its the reputation that we are doing this against Yahoo, EBay and MSFT (I denied this.)

Schmidt’s email clearly prioritizes Whitman’s and other CEOs’ concerns over the rights of employees or the concept of fair competition, even ordering a Google executive to “fire the recruiter [who offended Whitman] immediately.”

Link to the rest at PandoDailey

PG says pushing ebook prices up or employee wages down doesn’t speak well for Apple.

Apple

66 Comments to “Apple and Google’s wage-fixing cartel involved dozens more companies, over one million employees”

  1. Sure it doesn’t speak well for Apple, but I think more to the point, it doesn’t speak well for the “leaders” of all these companies, who were the ones to personally make all these deals, per the evidence.

    I think it’s sometimes hard for people to get riled up about tech workers being affected like this, because overall, tech workers are certainly paid more than the average worker in the US. And yet, their wages were still suppressed by this behavior. Which affects the economy as a whole, because middle class workers spend what they make, which creates demand, which powers the economy. Rich people tucking money in overseas banks aren’t out spending it on goods and services.

    The people personally making these deals – and the emails make it clear that this was done by the specific individuals at the very tops of these companies – are all most certainly in the top 0.01% of income earners.

    It’s sad they can’t be a bit more like Henry Ford, and realize that the more they pay workers, the more they sell. Higher per unit profit on fewer units vs. less per unit profit on many units usually = higher earnings overall, if you’re making a product a lot of people want or need.

    After all, isn’t that the lesson of indie publishing?

    • Mia, in all fairness, the average worker in the US didn’t invest tens of thousands of dollars getting the education needed for their jobs (except, perhaps, writers with MFA’s). I’d be completely unconcerned if we heard the CEOs were seeing their own salaries suppressed. Nothing they do could possibly justify their income…

      • Nothing against MFAs, but a lot of college educated workers spent thousands of dollars getting their degrees. Claiming that somehow those IT workers in Silicon Valley spent more money on their 4 year degrees than everyone else at the university is incorrect (tuition isn’t on a sliding scale with major).

        I’m not comparing tech workers to high school educated people working in the service sector, I’m comparing them to other middle class college educated workers, many of whom certainly earn nowhere near the money that those entering IT earn.

        I have spent the last 20 years in IT. I don’t think, for example, that the money I spent on my degree entitles me to better wages than my child’s high school teachers (many of whom, by the way, have Masters, to my Bachelors, and therefore probably spent more than I), and yet I out-earn them SIGNIFICANTLY. So does my spouse.

        • I’m not going to engage a moving target unless I know which way the wind is blowing.

          The average worker does not have a degree. University enrollment has been on the increase over the last few decades, but the majority of workers have high school diplomas and maybe a few credits from a local university.

          Professional degrees typically out-earn not only masters degrees, but also doctorates as well. Masters degrees almost caught up in the nineties but that was probably a bubble due to the MBAs who had us all convinced they had a clue.

          I had a good friend who went through an English degree while I was doing engineering. He had a few classes a day and spent most of his time playing his six string. I had the standard class load plus lab work, plus industry projects (my project partner and I saved a telecommunications company close to six figures in a project).

          Should my friend be entitled to the same salary as me, just because we both have bachelors degrees? It took me four more years of practice as well as the standard exam in order to call myself a professional engineer and it doesn’t end there. You have to spend endless personal hours on continuous development in order to maintain the designation.

          Should a teacher earn as much as an engineer?
          No.
          They should earn more. Much more.

          Should a CEO be worth a hundred times more than an engineer?
          No. Just no. So maybe they should collude to limit their executive salaries.

          • Should my friend be entitled to the same salary as me

            Shouldn’t we note that one isn’t really entitled to anything?

            In terms of value and worth, aren’t those based on the market, and what it will pay?

            I think that’s the problem here. I can see how these agreements would have kept wages low, but I’m not clear that those agreements were in place to keep wages low, and I think that’s a huge distinction considering the industry. And really I think it seems like the companies in question simply signed non-compete agreements with each other, rather than their employees.

            • We could substitute any word for entitlement.
              Good point.
              Market forces dictate compensation. It’s up to folks to assess the market as well as their own goals before they decide on their path.

    • It’s sad they can’t be a bit more like Henry Ford, and realize that the more they pay workers, the more they sell.

      “The payment of five dollars a day for an eight-hour day was one of the finest cost-cutting moves we ever made, and the six-dollar day wage is cheaper than the five. How far this will go, we do not know.” — Henry Ford, My Life And Work

      Ford raised wages to cut costs–before doing so, Ford had nearly a 400% annual worker turnover, afterwards it was near zero–not because he had some silly idea that it would allow his workers to buy more cars.

      • Either way, the effect is the same – if you pay people enough to buy stuff, they will buy the stuff they (and others) make.

        If you pay people at mere subistence levels (or even below), they won’t buy stuff, and you won’t sell as much of your stuff. You will begin the quarterly layoffs and profit-maximization strategies that generally mean your overworked, exhausted employees are providing poor service and since there are fewer customers with money to spend, you have lower unit sales.

        Velocity of money matters. It wants to change hands, not sit idly in bank accounts.

        • It makes sense at a national level, but makes no sense for an individual company. If Supercar, Inc pay the guy who bolts doors on $250,000 so he can afford to buy one, he’s far more likely to buy a house or something else than to buy one of their cars. Worse than that, Supercar, Inc might make $50,000 in profit on that car, so they’d have given away $250,000 to make $50,000. That’s a fast track to bankruptcy, not a way to increase profits.

          The whole idea that companies should pay employees enough to buy their products because the company will make more money falls apart as soon as you spend two minutes thinking about it.

          • One word: Wal-Mart.

            And with that, I think there’s not a lot of point in discussing economics with writers and MFAs. :D

          • Welllll, we kinda have that problem now. Ever since NAFTA, jobs have been moving out of the country. Companies like Apple and IBM import workers from India that they can pay less. With energy prices rising, the costs of all goods including food have gone up. Caught in the squeeze, we’re spending less on the products they’re trying to sell us.

            At its heart is the “tragedy of the commons,” and we can thank the free trade advocates for getting us in this position.

  2. Well, I’m outraged!

    Sooo…healthy competition is only for someone else, huh? If you’re rich, if you’re powerful, if you can make it so, the little guys will suffer and you’ll deal yourself special status exempted from fair play.

    Sure it’s human nature to better your own lot. But I’m still disgusted when people take that beyond fair effort into cheating.

  3. I have to admit I’m a bit unclear on all this. Maybe someone could help clarify this to me.

    I’ve worked in several industries. Professional publishing (as opposed to trade; we published medical journals and such), advertising, and a few others. I’ve occasionally signed contract clauses that indicated after leaving a certain position, I wouldn’t accept a similar position for a certain period of time–a non-compete clause. Which I don’t think are illegal (I could be wrong).

    Given the nature of the tech industry, I would think such a practice would be even more common there.

    Is it illegal because the companies entered into agreements with each other, rather than with their employees? Like, this is bad because rather than ask their head of tech to sign a non-compete clause, Apple (e.g.) asked Google not to cold-call that employee in an attempt to recruit her (or him)?

    Because I’ll be honest I’d think it would be even more underhanded if, e.g., Google cold-called Jony Ive at his Apple office and tried to poach him away from Apple.

    I remember reading not long ago that Apple prohibited Scott Forstall from talking to anyone for a year after Forstall left the company. Forstall–who was led the iOS team and might have been head of all software, I can’t remember–would have been invaluable to, say, Google at the time. I guess I just don’t see much difference.

    I’m also not clear how this becomes about wage-fixing rather than secrecy.

    Help?

    • Will, I have been in IT for 20 years and I have signed non-compete clauses at every company I’ve ever worked for.

      Generally speaking, the non-competes are to protect trade secrets. I’m probably not using the right terminology but PG can help, his profession being what it is.

      NCAs are there to keep you from going to a company producing a similar/same product, carrying along with you insider knowledge that could benefit said competitor (how easy to have the “well this is how we solved this design problem” conversation). However, if you are a programmer, for example, you should be able to go from working on Gmail over at Google to working on the Maps app at Apple without triggering a non-compete; the two applications and technologies have little to do with each other. However, if you wanted to leave Gmail and go work on iCloud’s mail app, that should trigger the NCA and the 1 year (or whatever term length it was) waiting period. And that’s IF your former employer is willing to sue you and your new employer. I’ve seen coworkers switch to direct competitors and get away with it, when the former employer elects not to pursue it legally.

      Trying to say, in essence, that you can’t take ANY other IT job at ANY other IT company is what’s wrong with the picture and what caused the DOJ to go after them.

      By ensuring that you couldn’t be hired by any other major company in your field, essentially they have locked you into your current job/employer, and you have no opportunity to move elsewhere for a promotion or simply more money, unless you can afford to take a huge time-out. At least in Forstall’s case, he was high enough up in Apple that I’m sure he could simply retire if he felt like it. But that’s certainly not true for the average Silicon Valley worker.

      Remember these illegal agreements covered ALL employees at the affected companies, from the HR recruiters to the admin assistants; there was to be NO recruiting across company lines. That would dim your job prospects considerably if you wanted or needed to move on.

      • Will, I have been in IT for 20 years and I have signed non-compete clauses at every company I’ve ever worked for.

        I’ve been in IT for 20 years, and only signed a non-compete once out of about eight jobs. And that one required the company to pay me whatever the other company would have done, for the year I couldn’t work there. It was also never enforced on those who broke it, probably for that reason.

        • Wow, that actually surprises me. Only one? The smallest company I’ve worked for had about 600 employees, and they required one – they had 3 full time attorneys and a fully staffed HR department though. And of course all the larger companies I worked for had full time HR/legal teams as well.

          I have had to sign one for every company I’ve worked for since exiting college. They were all specifically geared to say that I could not go to work for a company on a competing product for a length of time (generally 1 year, although one of them said 2 years). I’ve seen my various employers react the following ways when fellow employees turn in notice: 1) demand to know where they are going next, and if it is deemed a competitor, immediately escort the employee off premises; 2) in some cases, pursue legal action against the employee and win; and 3) in some cases, shrug and let them go, with a “not eligible for rehire” flag on their HR file.

          Interestingly, a lot of the “pursued” legal cases were against the sales people and sales engineers, instead of developers or IT ops people. I think the contact network and insider knowledge that can cost the jilted employer million(s) dollar deals scared them a bit, so they put more muscle behind enforcement there.

          • Non-compete agreements are illegal in California except for some very limited situations (like a business owner selling her complete business to another), so this talk about NCAs really depends on where the worker is located.

            Unfortunately for them, these companies are mainly in CA so they cannot use such tactics on their employees. I guess that is why these kind of backroom deals start happening.

      • Trying to say, in essence, that you can’t take ANY other IT job at ANY other IT company is what’s wrong with the picture and what caused the DOJ to go after them.

        But they weren’t, were they? Apple agreed they wouldn’t try to solicit Google employees, and Google agreed they wouldn’t try to solicit Apple’s.

        I just realized I briefly worked at one of the companies involved, as I think WPP bought Young & Rubicam shortly before I left the agency.

        • Well…at first.

          Then all the companies formed the same deal with all the other companies. It became known as “the Techtopus” for its wide-reaching tentacles of wage-fixing and hiring-bans.

          So, yeah, it’s a pretty big problem.

    • What’s going on here is that these companies agreed among themselves that they wouldn’t offer an employee going from one business to the other higher pay than they were already making.

      So, for example, if Google wanted to hire a manager from Apple, they agreed that they would not tempt that manager over to Google by offering to pay her more than she was making at Apple. In that way, the manager would have no really good reason for leaving Apple.

      I suppose on the surface there’s nothing inherently evil about this, but the extent to which it spread throughout the tech industry is extremely disconcerting. It effectively capped wages for a huge chunk of the “little guys” in the industry and made it virtually impossible for them to ever advance their careers. And it artificially locked tech-industry wages into a much lower rate than the businesses could have supported.

      The more that comes out about Apple’s shady business dealings, the less I understand why people still clamor to buy their products. Steve Jobs was a rat. After he died people made A SHRINE (literally) outside our local Apple store. Are you kidding me? This man had no qualms whatsoever about screwing over the little guys for his own personal betterment. I don’t understand the persistent Apple-worship, and the story just keeps getting worse, too.

      • Sadly, many of the competing smart phone and tablet products are in whole or in part produced by the same people/companies in this cartel.

        They’re ALL rats, at that level, I fear.

        • True. They are all rats at that level. But like Meryl, I don’t understand the weird evangelism among Apple fans, and the fact that it doesn’t seem to be abating in the face of all this ratly behavior that’s being exposed…that just mystifies me.

          • Stockholm syndrome. Also, they’ve been fed this vision of Apple as Being Different for so long, and Jobs as this God-like figure, that the reality of Apple being like any other corporation and Jobs as a terrible human being (albeit with some good qualities to be sure) causes cogitative dissonance. (Something which, yes, I suffer from as well.)

      • What’s going on here is that these companies agreed among themselves that they wouldn’t offer an employee going from one business to the other higher pay than they were already making.

        Right. I get that part. I’m just saying I thought that’s basically what NCAs were for. Like of course Google can’t just hire the guy who designed iOS by paying him ten million dollars more, or whatever. He’s the dude who designed iOS, for Apple, so he can’t work for the company that produces Android.

        It’s probably worth noting the complicated history between iOS and Android, too, right? Jobs thought until the day he died that Google had stolen iOS to make Android.

        the less I understand why people still clamor to buy their products.

        The products are great.

        • The products are great.

          Bingo. I’m a Linux and Android user, but I’d certainly admit that Apple products are, if not better, usually at least much slicker than most of the competition.

          My Nexus 7, for example, has much more powerful hardware than our iPad Mini, yet everything feels faster on the iPad, and the interface feels far more consistent than Android. Apple also seems to be less privacy-invading than Google (e.g. allowing you to individually control app permissions, rather than Android’s ‘all or nothing’ approach), though I don’t know for sure whether that’s true.

        • My understanding is that they weren’t only doing this with engineers, but even with more entry-level positions, and even HR-oriented, non-engineering, non-sensitive-information-having employees like coders and personnel managers. So they probably started doing it to defend proprietary information, which is understandable, and then kept doing it to EVERYBODY, to keep their profit margins higher. Which is gross.

    • Will, it’s pretty simple. It is illegal for companies to collude to keep employee wages low. And that is what Apple, Google, and the others did.

      The more I learn about Apple, the more disgusted I get with Apple and the Apple evangelists who think the company can do no wrong.

      • Is that what they were doing? Were the low wages the reason for the agreements, or merely a result of them?

        If I were Apple, I wouldn’t want Google to poach one of my employees.

        I’m an Apple user. I don’t think Apple can do no wrong. Neither do I think Derangement Syndrome is limited to Amazon.

        • You’re not an evangelist, Will. I didn’t say Apple users. I’m talking about the people who think Apple is the reason we entered the age of technology. I wasn’t directing my comments at you, but in general.

          The large tech companies have conspired to keep tech wages lower for decades. They are the ones who have lobbied Congress to allow cheaper immigrant tech labor in the country on special visas. So we get people from India and China who are making more than they would at home, but less than they would at U.S. wages, and depress the wages of all tech workers. It’s exploitation on so many levels.

          I am a proponent of the free market, but this is not the free market at work. This is the executives of tech companies–all of whom make money hand over fist, by the way–conspiring to make sure their labor costs remain lower than the free market would otherwise bear. By agreeing not to “poach” each other’s workers, the companies benefit at the cost of those workers, who otherwise would be job-hopping for raises. Again, that is not the free market at work. That is a conspiracy to set wages artificially low.

          • Thanks for the clarification Meryl. I’d worried.

            And to your point, I love my Apple products but abhor their business practices, particularly abroad. Their manufacturing facilities seem to justifiably warrant criticism.

            I just worried here, mainly because I thought it was a case of maintaining companies’ intellectual property more so than colluding to keep wages low. The net effect might have kept wages lower than they would have otherwise been, but I wasn’t sure that was the motivation of the agreements in the first place. But I do see what you mean.

          • I’m talking about the people who think Apple is the reason we entered the age of technology.

            Yeah. Those guys. I don’t get them.

            If you prefer Apple’s interface (I don’t; I find it awkward and unintuitive) then great. That’s just personal preference. The people who made shrines to Steve Jobs at the Apple store make me raise an eyebrow.

    • Non-compete clauses are effectively illegal and unenforceable in California, which may explain (but not justify) the creation of the non-hire cartel.

      • Interesting. So is there a way that a company could maintain its control over intellectual properties, by general policy? And without such an agreement, doesn’t it all simply become a game of measuring the depths of pockets? Like “I’m Apple, and I want Google’s Maps app but no longer want to license it, so hey I’ll just offer their top Maps app engineer an extra hundred thousand dollars and a half a stock option”?

  4. Will Entrekin, here are some of the ethical problems.

    1) Tech workers (like many) earn more money through switching organizations than waiting for internal promotion. (Even startups which used to be much less stratified are now heavily divided by class between workers and management levels). So if they can’t apply to another firm based on these secret agreements (or, worse, are outed to their own firm in the attempt), then they suffer significant barriers to bettering their situation.

    2) Refusing to poach senior employees is partly about secrecy, but don’t forget that’s it’s also more basic. If I hire one of your senior sales guys, then not only do I know what he knows about upcoming products (which may not be much meaningful) and about the comparative competitive product strengths, but I also (very importantly) get his rolodex of your customers, and of people on the fence who he could steer to my products. Entire channels of revenues follow these guys around, esp. for companies whose primary customers are big corporations.

    So I have incentive to hire your successful sales guys, or other rainmakers. By artificially preventing people like me from doing so, that sales guy is secretly hobbled in his career. He is creating more value for his company, but prevented from creating more value for himself, if it’s harder to sell his services to someone else.

    3) Other senior execs typically have the following choices. Either they can contribute their vision to the overall direction of the company, or they can hope to ascend to the top, or they can take their vision elsewhere. The second is always statistically a long shot. If they can’t do the first, their usual recourse is to leave and pursue their vision. But if similar companies refuse to hire them, based on collusion, then they are being constrained in their choices. Combined with leaks back to their own firm, they may be out of a job.

    • Karen’s #2 is so very right. Most of the times any of my employers have tried to legally enforce a former employee’s non-compete agreement, it has been a sales person or sales engineer. Because they can take so much money with them.

      I can only think of a few times where they tried to enforce on someone in the software development or operations areas.

      • We enforce them without fear or favor, for the simple reason that we do not want anybody to think that because we didn’t go after X, we won’t go after them, nor to deal with silly arguments that we didn’t really “mean” it since we usually don’t enforce them.

        We have had some rather unfortunate outcomes where a bright but clueless individual, who really didn’t mean any “harm” for a reasonable definition of harm and certainly doesn’t mean to cause us a competitive disadvantage, sees what looks like a better job offer, takes it, gives notice, and then gets a polite but firm letter from me informing them that if they take a job with a competitor, we will take all appropriate action to enforce our rights. If they’d come to me BEFORE they quit, a waiver might have been an option. But if you quit and run out the door without a care for your responsibilities, I am not going to discuss a waiver with you.

    • There is also a replacement cost.
      Losing a trained, experienced employee means promoting (at higher pay) internally, often in a cascade leading to a fresh-out hire, or head-hunting an external hire, often at a premium.
      During the federal antitrust case the evidence unearthed proved the intent was cost savings by limiting career growth through job-hopping, not IP protection.
      It also proved the cartel was started by Steve Jobs personally.
      It turned out that Apple (and Google) approached Facebook to get them to stop “poaching” staff but they refused so the word was passed up to Jobs to get him to talk to some members of the Facebook board to get them to lean on Zuckerberg.
      Facebook staff are actually testifying for the plaintiffs in the class action lawsuit.
      http://www.cnet.com/news/sandberg-says-facebook-rebuffed-google-no-poaching-pact/

      CNET, above, has a chart tracking the growth of the hiring conspiracy outwards from Apple and Picard starting in 2005.

    • Thanks for the reply, Karen. I think the difference I see are two-fold. This wasn’t about preventing employees from applying to other jobs so much as it was about preventing companies from soliciting employees.

      For the same reason you mention in number 2. Which I see is exactly the point. If I were Google, I’d want Apple’s top iOS engineer–and if I were Apple, I’d want to make sure my top engineer couldn’t move to Google. And if I were Google, I’d want to make sure Apple couldn’t call up my Maps guy and offer him $5mm more.

      • So rather than treat the engineer well and pay him what he’s worth, they conspire to keep him on the plantation and at a lower wage. Win-win for both companies.

  5. What always blows my mind is they put this stuff in writing. I mean, really. The stuff they do doesn’t surprise me, but the fact that they document it??

    Mind-boggling.

    • “I never wonder to see men do evil, but I often wonder to see them unashamed.”

      It’s not, sometimes, that they don’t know it’s wrong, it’s that they don’t think it’s wrong, and so subconsciously they can’t help explaining/searching for agreement and validation.

  6. Non-compete clauses should be illegal. In California they already are – and apparently other states are considering it too. Unless the company asking the employee to sign the non-compete is going to compensate you for the time period before you can go work for a competitor, they have no right to restrict someone’s career.

    Non-compete clauses are just one of the many reasons I hate working for other people – and can’t wait for the day when I can be afford to write and self-publish full time.

    • Not all noncompetes are illegal in CA.

      “[A] covenant not to compete will be enforced [under section 16601] to the extent it is reasonable and necessary in terms of time, activity and territory to protect the buyer’s interest.” Monogram, 64 Cal. App. 3d 692, 698 (1976) (emphasis added). Section 16601 “permits a covenant not to engage in a business’ ‘similar’ to the one sold, in the area where the business sold has been carried on, so long as the buyer carries on a like business therein.” Id.(emphasis added). “Otherwise, a seller could be barred from engaging in its business in places where it poses little threat of undercutting the company it sold to the buyer.” Strategix, Ltd. V. Infocrossing West, Inc., 142 Cal. App. 4th 1068, 1073 (2006). “The territorial limits are coextensive with the entire area in which the parties conducted all phases of their business including production, promotional and marketing activities as well as sales.” Monogram, 64 Cal. App. 3d at 702. However, the area is limited to that in which competition “in fact” occurs, and not where there is only “insubstantial and infrequent or isolated transactions.” Id. at 698. – See more at: http://ymsllp.com/news-and-publications/with-limited-exceptions-non-compete-clauses-are-not-enforceable-in-california/#sthash.BQE4tLrd.dpuf

      • That’s essentially in connection with the sales of a business, not an employment relationship, Pete.

        California attorneys regularly explain to non-California companies with employees in California about the unenforceability of non-compete agreements. Choice of law provisions won’t help.

        • And of course what our gracious host says. Any reasonably experienced *cough, cough* employment or corporate attorney knows that no matter what you think the law says or how clever your magic lawyer words, you should consider non-competes unenforceable in California for practical purposes. (Not that you can’t enter into them: they’re not illegal. They’re just not enforceable.)

          Not legal advice, but in very general terms the way you deal with really valuable employees in California is through financial incentives and the threat of loss thereof. Clawbacks on financial incentives ARE enforceable, if otherwise in accord with CA law.

    • I have to speak up for my side here. My company uses non-competes which are, in both my opinion and the opinion of some rather highly compensated expert counsel, reasonable and enforceable.

      We do this because in our particular industry, I don’t care how educated you are before you get here, we are GOING to have to train you to do things our way, and more than likely we are going to have to train you how to do things the way our industry as a whole has to do them since we are a highly regulated industry whose practices are not followed outside it. That costs us money and it costs us time which is also money.

      The first X months you are here, you are a liability, not an asset. If we train you how to do things the right way and inculcate our methods and approaches into you, even the ones which are not trade secrets, that is valuable information. So, if at the end of say eight months, you have a good head of steam, know how to do things the way the regulators like and know good and efficient practices for doing so that we’ve developed, and you leave for another job, you have just cost us tens of thousands if not hundreds of thousands of dollars in exchange for practically nothing.

      We can’t vacuum it out of your head, nor can we get our money back, so the non-compete is basically our way of saying, “Okay, fine, for a period roughly equal to how long it took you to become valuable to us, you can’t go and be valuable to somebody else doing the exact same thing.”

      • But if your methods are unique and require training to achieve, how could that employee “be valuable to someone else doing the exact same thing”, if no such company exists like yours?

        I’ve seen plenty of non-competes and it’s like the 800-pound gorilla: if the company that wants to hire you in a time of high unemployment wants a non-compete, good luck getting that changed or turning down the job.

        I don’t have a problem (in your situation) wanting some sort of ROI for the training you put into an employee, but frankly I’d always rather apply the carrot instead of the stick. “If you stick around for X months, then (if you qualify) you will be entitled to a raise of Y% or a shot at the next level up…”

        Of course, if everyone did that you’d have something new and different in business: a free market, labor as well as goods. It all comes down to money and looking for ways to subvert the free market. No wonder most of these firms like big government.

        • I didn’t say there were no other companies like ours. There are several other companies like ours. We both give new employees to the industry a general understanding of how the industry works, and specific knowledge of how *we* work. Some of that latter is a protectable trade secret, and some of it is not. The part that isn’t is still valuable information and provides different ways to practice methods which make the employee more valuable to our competitors.

          If they’re entirely new to the industry, this is much more valuable to them than if they are just new to us, but either way they’re getting something valuable in exchange for not much since until they’re up to speed somebody has to go over every single thing they do.

          I must strongly protest your implication that non-competes make a market in labor un-free. Freedom to contract is the ultimate freedom for both capital and labor. If I am not free to make a contract of exclusivity, that doesn’t make a labor market more free, it makes it less free. As you say, if the labor market is more favorable to employers than to employees, it may be harder to argue against non-competes, but that is not lack of freedom, that is just supply and demand. (I have had particularly valuable employees negotiate more liberal terms for their NCA, even in tight labor markets.) It’s no different than the fact that in a tight labor market employers can offer lower salaries and benefits than they could in a labor market with higher demand for labor. It’s all compensation: it’s all free exchange.

          • You’re twisting the meaning of free. If you don’t have the “freedom” to restrict my freedoms, then somehow that makes the market less free? Nope – it doesn’t work that way. Freedoms in general only extend to the point where they infringe on another person’s freedoms.

            If you want to retain the best employees – you are free to offer them better compensation/packages – or you are free not to. Just as they should be free to go work for whoever they want (as long as they aren’t stealing trade secrets which are reasonably protected by the law).

            • It’s not that *I* have the freedom to restrict your freedoms: it’s that *you* do. If you don’t, then you are not free. If you can’t give a thing up, you do not own it.

              • I guess you are saying that a prospective employee has the choice to accept a job with your company and thereby accept the non-compete clause which restricts their freedoms.

                That would be true except when all the companies have similar non-compete clauses – there really is no choice for the employee. They have to accept something that restricts their freedom just to get a job.

                • … or they can work in some other industry or start their own business.

                  I personally know of at least one startup in our industry that did, in fact, have as a principle that they would not put “onerous” NCA on their employees.

                  They promptly went out of business as talented employees gained industry experience and left for established companies with deeper pockets.

      • But why would one of your employees want to leave unless someone else was offering them a better deal? It sounds like you would rather artificially lock them into a job at your company rather than compete with your competitors by providing your employees with a package and environment that makes them want to stay with your company.

        • Actually I can think of several reasons they might want to leave, and for some of them (e.g, “I have to go take care of my mother and she lives in X state and Y competitor has offices there and you don’t”) I might consider a partial waiver.

          But fundamentally, your question assumes that the only way to compare what we offer to what our competitors offer is by comparing salary amounts. In some respects, that might be true. But on the other hand, as a smaller company without the resources of some of our competitors, we often don’t compete directly on salary – and one of our larger “benefits” is that we will hire people with less experience than our larger competitors will. We CANNOT compete with our larger competitors on pure salary: some of them have literally orders of magnitude more capital than we do.

          • It’s a fair point that it can be hard to compete on a pure salary basis. I would say that is where you have to incentivize in other ways.

            To me saying the answer is a non-compete clause is very similar to how the Big Six decided to collude because it was hard to compete with Amazon, instead of trying any number of alternatives to find ways to compete.

            • Yep. Exactly.

              Trade secrets should be legitimately protectable, but if you want to keep employees, you have to make it worth their while, either through pay, or opportunities for advancement, or training that will make them more valuable, or through workplace environment, etc. Not all incentives are monetary.

              And if you want to restrict their labor via a non-compete agreement (separate from trade secrets), you need to compensate them for that. The fact that SV and elsewhere hasn’t had to do that (yet) is part of the evils of the non-compete world.

              Money for value. If I build a business and sell it to someone, he can legitimately contract with me not to compete against him directly for some period of time. But I am compensated as part of the sale price for the business.

              If I work for a company and leave for a competitor because I am offered a better deal, well, as long as I don’t divulge trade secrets or bad-mouth the firm, so it goes. The company I left was free to provide sufficient incentive to induce me to stay. People are loyal to the firms who are loyal to them, all else being equal. It’s up to those firms to make sure all else really is equal. Or better. The cost of doing business in a competitive market.

              Or as I used to explain to work mates complaining about bad bosses and unpleasant situations, “Lincoln freed the slaves.”

              • Signing the non-compete was just as much part of YOUR end of the deal as me paying you was part of mine. Value for money.

                How would you feel if I said to you, “Fine, but if you won’t sign the NCA, I can only offer you 80% of base salary for your position and you will not be promotable?” (Actually I have said that to people. At least one of them agreed. So much for “SIGN OR PERISH.”)

                As a famous literary capitalist said, “If I was to stop half-a-crown for it, you’d think yourself ill-used, I’ll be bound?”

                • Ill-used? This is a standard practice. I’ve signed on (to a Big 4 accounting firm) with a low salary plus a bonus, with the understanding that if I left before a period of time was up, I lost the bonus (and leaving was such a possibility, I kept the bonus in a separate savings account in case I had to pay it back. Big 4 firms pretty much run on the idea that they pay staff a low salary and work them to death, but people put up with it to get it on their resume when they look for a better job.)

                  A friend of mine’s IT employer paid for some very expensive training, with the understanding that if she didn’t stay for a period of time, she would have to pay them back for the training. She was forced to put up with some pretty awful conditions because of that.

                  If you go for the lower salary option, you’re going to get lower level employees that you train, rather than pay a higher wage for a higher level employee. That’s going to automatically lead to high turnover if you don’t find a way to reward them when they’re worth more.

                  Or you can look at non-monetary ways to reward people – lots of people will take a lower salary for better hours or really interesting projects or a great work environment or hope of more money in the long run, like stock shares.

              • One of the stranger manifestations of my occasional OCD is to point out, whenever that assertion is made, that Lincoln freed almost no slaves. Where his writ ran, he largely did not attempt, and where he attempted, his writ largely did not run.

                In analogous situations I usually just say, “Hurray for the 13th Amendment.”

            • Except that that was illegal, secretive, and directly designed to harm consumers, whereas this is a freely-entered into agreement with knowledgeable parties and framed in a way firmly established to be lawful and enforceable.

              Other than that I guess they’re sort of analogous in that they’re agreements not to, um, do something.

              • Except that states are now passing laws to make non-compete clauses illegal (laws change – my original assertion was that they should be illegal), in countless cases they have been found to be unenforceable, the agency agreement was not a secret (only how they arrived there), and Amazon was just as free to enter into the agreement (unless they didn’t want to sell books anymore). The colluders’ intent wasn’t to harm consumers – it was to make the Big Six and Apple more money without having to compete with Amazon. Harming consumers was a side effect. Similarly, I thought the intent of the non-compete clause was to make it easier to retain employees and to not have to compete on salary. Screwing employees out of career advancement opportunities is just a by product (unless you are saying that is the intent).

  7. The people who defend capitalism the most are usually the ones who try the hardest to get around the rules.

    • Proof? I don’t often hear of Jobs, Schmidt, et all delivering passionate defenses of capitalism. I most often hear of them currying favor with politicians and each other.

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