It’s official. A former employee of Live Oak Bank and of Apiture LLC – a financial technology joint venture between Live Oak Bancshares and First Data Corp. – has filed suit in the U.S. District Court’s Eastern North Carolina District to contest a nonpoaching employment agreement he alleges exists among Apiture, Live Oak and banking software company nCino, all based in Wilmington.
On March 12, Joseph McAlear filed a class-action suit on his own behalf and on behalf of others who he believes lost out on job opportunities with the three financial technology companies. Live Oak’s software engineering department and nCino are named defendants in the suit; Apiture is not.
“This class action challenges an illegal agreement between nCino, Live Oak Bank, and non-party Apiture LLC (‘Apiture’) to suppress competition for each other’s employees (the ‘No-Hire Agreement’),” the filing states. “The No-Hire Agreement pertained to all employees of nCino and Apiture, and employees in the software engineering department of Live Oak Bank, employed in Wilmington, North Carolina. The express purpose of the No-Hire Agreement was to prevent the companies from having to pay competitive wages to attract and retain talent.”
A lawsuit represents one side of a dispute. As of press date, Live Oak and nCino had not yet filed their response to the legal complaint, according to court documents.
Officials of all three companies, reached in late March for a statement, said their policy is to not comment on pending litigation.
The No-Hire Agreement began as early as nCino’s founding in 2011 and continues to the present, the suit contends, adding, “The No-Hire Agreement restrains competition in the labor market and is per se unlawful under federal and North Carolina law.”
McAlear seeks damages for the plaintiffs’ alleged violations of Section I of the Sherman Act, according to court documents. That federal legislation, enacted in 1890, sought to curb concentrations of power that interfere with trade and reduce economic competition. It applies to any agreement to fix prices, limit industrial output, share markets or exclude competition, whether across state lines or foreign boundaries. The focus of McAlear’s suit is very local.
The class action filed on behalf of McAlear and others states that he does not know how many affected employees might make up the so-called proposed class, but believes there are at least 700.
Among a number of questions, the court will seek to determine whether, between 2011 and the present, Live Oak Bank and nCino had a no-hire agreement, which they expanded to include Apiture when the fledgling company was established in Wilmington in 2017. A second question is whether, if such an agreement existed, it was concealed from employees of one company seeking employment with another.
A further matter in the case is potential compensation loss: the difference between what the plaintiff and proposed class members earned from nCino, Live Oak Bank and Apiture and what they would have earned from those companies in the absence of a no-hire agreement.
The suit filing points out that Wilmington does not have any peer fintech companies to the defendants and Apiture.
“In a properly functioning and lawfully competitive labor market, nCino, Live Oak Bank, and Apiture would compete for employees by recruiting and hiring from each other,” the document states. “The consequence of their geographic proximity on competition for employees is profound. To work for any other potential employer in the same industry would require an employee to move to another city – at minimum, to the Research Triangle, approximately 130 miles away.”
Such a move would cause an employee to pull up roots in Wilmington and resettle elsewhere, the complaint alleges.
“As a result, but for the No-Hire Agreement, Live Oak Bank, Apiture, and nCino would have been each other’s key competitor for employees, and their competition would have driven up employee pay,” the document continues.
None of the three companies has commented publicly on the lawsuit. In its Feb. 25 annual report 10-K filing with the SEC, Live Oak officials acknowledged learning that a lawsuit was possible.
“On December 15, 2020, the Company received a letter from a law firm representing an individual claiming that the Company sought to restrain the mobility of employees in violation of antitrust laws by agreeing not to solicit or hire certain employees,” Live Oak officials stated in the filing.
nCino likewise noted in a Feb. 23 8-K filing with the SEC that some of its officers and employees had received subpoenas related to the matter. “On February 23, 2021, the Company and certain of its officers and other employees were served with grand jury subpoenas wherein the Antitrust Division of the Department of Justice is seeking documents and information in connection with an investigation of the Company’s hiring and wage practices under US federal antitrust laws. The Company is fully cooperating with the authorities,” officials stated in the filing.
“Previously, the Company received a letter from a law firm representing one individual seeking to resolve potential civil antitrust claims against the Company and Live Oak Bank, a business based in Wilmington, North Carolina, relating to an alleged unlawful agreement not to solicit or hire certain employees,” the filing further stated, adding, “Although there can be no assurance with respect to the outcome of these matters, the Company believes its hiring and wage practices do not violate antitrust laws.”