The tech industry is known for many things – constant innovation, quirky work environments and intense competition, among others. Sometimes, however, competition among tech companies does not extend to vying for talent, because companies may enter into tacit agreements not to hire workers away from each other.
“These agreements are much more common in highly competitive – think technology – areas like Silicon Valley, where you have Google, Microsoft, etc. fighting over these agreements for decades,” said Paul Derrick, who is of counsel and Wilmington representative for Barnwell Whaley law firm.
“They have been in the news, not so much on the East Coast, but definitely on the West Coast. [The agreements] are usually kind of clandestine: wink, wink, nudge, nudge, and they happen through both Democratic and Republican administrations. Nobody really challenges them. There is a lot more enforcement through the Justice Department to rein those in because they affect employment markets and wages.”
In the past year, Wilmington has seen a lawsuit alleging just such an agreement.
Filed in March 2021 by former Live Oak Bank and Apiture employee Joseph McAlear, the suit alleges that McAlear’s efforts to recruit job candidates who worked at one of the other companies met with opposition from his superiors.
His class action suit, filed in U.S. District Court, named Live Oak and nCino as defendants and alleged that “[Live Oak and nCino] and their co-conspirator [Apiture] entered into, implemented, and policed the No-Hire agreement with the intent and effect of suppressing the compensation of their employees at artificially low levels.”
In a court filing Oct. 13, 2021, nCino denied McAlear’s charges that there was an “illegal agreement between nCino, Live Oak Bank, and non-party Apiture LLC to suppress competition for each other’s employees.”
nCino further denied McAle-ar’s allegation that “The No-Hire Agreement began as early as nCino’s founding in 2011, and has continued to the present” and that “The No- Hire Agreement restrains competition in the labor market and is per se unlawful under federal and North Carolina law.”
Live Oak Bank recently agreed to pay $4.65 million on behalf of itself and Apiture, the fintech of which it owns half.
The suit is ongoing because nCino, the other named defendant, had not settled as of press time, nor had there been any judgment about the alleged conspiracy.
A class-action lawsuit occurs when a group of people or businesses brings a lawsuit against a defendant alleging that they have suffered common injuries or wrongs as a result of the defendant’s actions, Wilmington attorney Dalton Green said.
“The injuries can be physical, such as in a products liability case; or monetary, such as in the antitrust suit brought by Joseph McAlear,” said Green, who practices employment and labor law with Hedrick Gardner Kincheloe & Garofalo LLP, but is not involved with the McAlear suit.
“A single plaintiff will act as the representative for all the other members of the class. Class actions can be practical because they help courts manage an issue that, otherwise, would result in potentially hundreds of lawsuits.
“Class actions can also benefit the potential plaintiffs because many or most do not have sufficient damages to justify the time and expense of filing a suit separately.”
It has not been determined just how many people will choose to join McAlear’s class-action lawsuit.
In a recent notice from the court, employees of Live Oak, nCino and Apiture are told of the options available to them of remaining in the “class” or opting out.
The suit brought by McAlear is an antitrust case, said Norwood Blanchard, an attorney with Crossley McIntosh Collier Hanley & Edes PLLC in Wilmington, but is also not involved in the McAlear case.
“Traditionally, when we think of antitrust issues we think of price-fixing for goods and services,” Blanchard said. “Two come to mind: Purdue and Pilgrim’s Pride and some other large poultry producers and processors were sued and made very large settlements for price-fixing chicken. The other is canned tuna: Bumble Bee and other large producers were accused by the [U.S.] Justice Department of price fixing. With labor, it’s not something you traditionally think about as being price fixing. Labor is not a fungible commodity like tuna or chicken.”
Regardless of whether you’re talking chicken or employees, antitrust cases are based on the Sherman Anti-Trust Act, passed by Congress in 1890 and aimed at preventing concentrations of power that interfere with trade and reduce economic competition, said Derrick, who specializes in employment and labor law but is not involved with the McAlear suit. Enforcement of the act is through the Department of Justice.
While the Sherman Anti-Trust Act has been used against employers who banded together to regulate – and depress – the job market, wages and opportunities for, say, factory workers, the stakes might be even more significant today when such agreements keep highly skilled tech workers from pursuing other high-paying opportunities, Derrick added.
“The problem for an employee may be greater today: An employer may pay $90,000, but maybe the employee could get $20,000 more by jumping ship. Today, you have instant online job openings; jobseekers know salary trends, job descriptions,” Derrick continued. “No one will hire them; they can’t transfer within related companies. [This kind of agreement] is seen as a drag on the employment market. It’s a tough place to be stuck in, and it’s a lot worse in Wilmington because it’s an emerging tech market with fewer employers.”
The idea behind antitrust laws is that competition for goods, services or employees means that no particular business will be able to take unfair advantage of consumers, Green said.
“In other words, in a competitive environment, in order to survive, a business is forced to offer quality goods and service at an attractive price,” she added. “Otherwise, consumers will take their business elsewhere.”
While employment-related antitrust lawsuits are not frequent in North Carolina, the state is beginning to see them, said Blanchard, who practices employment and labor law.
He pointed to the high-profile suit brought against Duke University and the University of North Carolina at Chapel Hill in 2018 by a former Duke radiologist who accused the schools of secretly conspiring to avoid poaching each other’s professors.
“The suit has been very costly for Duke and UNC,” said Blanchard, noting that Duke ultimately agreed to pay $54.5 million to settle the claims of this class-action lawsuit, which expanded to include the claims of other faculty members. “The allegations in the Live Oak-nCino case were essentially that the agreements among that group of companies and competitors had the effect of holding down wage rates.”
Blanchard believes there is more opportunity for price-fixing behavior in a smaller market with few large companies in a competitive industry.
“Duke and UNC are classic examples in the Triangle for hospitals,” he said. “Between those two they commanded a large portion of the market share and would have had the ability to manipulate the [medical employment] market.”
Such agreements are more likely to happen in a high-pay, high-skill job market because of the employee costs that can be involved, Blanchard continued.
“It’s not just holding wages down; there’s a tremendous amount of expense in turnover for jobs like that,” he said. “They’re paying recruiters a significant amount of money and paying for relocation [of the new hire]. I suspect it’s a group of factors that influenced this behavior, but they are all designed to save money and institutional knowledge. The losses for the employer are more than the measurable dollars and cents.”