Last week, the U.S. Department of Justice filed a lawsuit against eBay for a non-competition agreement it had signed with Intuit. The agreement prevents either company from trying to hire someone from the other’s staff. According to the Associated Press, the federal suit says Meg Whitman, former CEO of eBay (now CEO at HP) and Scott Cook, Intuit founder, were involved in forming and enforcing the agreement. It was in place from 2006 to 2009.
Intuit was not named in the lawsuit because it had already been listed in a suit and settlement from September 2010 over a series of similar agreements with other companies (Apple, Adobe, Google, Intel and Pixar) not to hire each other’s employees. The current eBay case grew from the 2010 one, but is being treated as a separate suit.
Competition Doesn’t Hurt, But Limiting Opportunity Does
Tech companies are in constant competition when trying to find qualified people to work for them. Acting Assistant Attorney General Joseph Waylan said in the DOJ’s press release that the department believes eBay violated antitrust laws by entering into this agreement because it “eliminated a significant form of competition to the detriment of affected employees who were likely deprived of access to better job opportunities and salaries.”
By preventing Intuit, or any competitor, from trying to hire their employees, eBay is trying to limit the options for its employees and thus reduce their leverage. This means employees might not be able to negotiate raises or better benefits because there are fewer places for them to go if their requests aren’t met.
Bad Practice, Good Business?
These agreements are illegal, and clearly hurt employees. But it’s easy to understand why companies are tempted. After all, in most states, companies are allowed to develop these kinds of agreements directly with their employees, if not with other companies. They see this as a way of protecting an investment. Employers put a lot of money into training employees, not to mention the access given to confidential information and relationships. Non-compete agreements help prevent that investment from benefiting a competitor.
Michael P. Elkon, a labor attorney with Fisher & Phillips LLP, says that knowing who the winners and losers are in these kinds of agreements is up for debate. On the one hand, these agreements can be seen as depressing wages and preventing the “cross-pollination of ideas.” On the other hand, “They allow companies to protect their investments in employees and thereby create a more business-friendly climate.” He noted that in 2009 Georgia passed a statue that made the law more favorable for the enforcement of this kind of contract. But right now, Massachusetts is considering a bill that will do the exact opposite, making the contracts
In California, non-compete contracts between employers and employees is prohibited, except in limited circumstances. That could be one reason for companies to make anti-competitive deals with others in their industry. California State Attorney General Kamala Harris is filing a State lawsuit – separate from the federal one – based on the State’s stronger protection against anti-competitive agreements.
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