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In Business, Only Bad Eggs Prevent Poaching

Posted by: Matt

The long-running poaching dispute between four global tech giants and more than 64,000 of their employees may finally have reached it’s conclusion after Apple, Google, Intel and Adobe offered to settle the lawsuit for $415 million (USD).

The lawsuit claims the companies had made formal agreements not to recruit each others employees. One email exchange cited in the class action reportedly shows Eric Schmidt, former CEO of Google, telling Steve Jobs, former boss of Apple, that any Google recruiter who solicited an Apple employee would be fired. All four deny any wrongdoing.

Litigants say the pact limited job mobility, undercutting the ability of workers to receive full compensation for their skills and resulting in $3 billion in lost wages. Had the companies lost the case, damages could have run to as much as $9 billion under U.S. antitrust laws.

The case – which bears striking similarities to a 2010 lawsuit concerning Pixar and LucasFilm – has reheated the public debate on no-poaching agreements.

In New Zealand, such activities are prohibited by The Commerce Act, which aims to promote competition in business. The law states that “prohibiting a person with ‘substantial market power’ from taking advantage [of that power] for an anti-competitive purpose” is subject to fines in excess of $10 million.

Eye-watering penalties aside, what’s so bad about trying to prevent losing your best employees to competitors? Put simply, these practices have the same stifling effect on competition as price-fixing (also covered by The Commerce Act). Substitute ‘employee’ for ‘customer’ in the communications between Jobs and Schmidt and few would dispute the obvious illegality.

No-poaching pacts clearly benefit companies at the expense of employees, increasing the market power of the former while restricting it for the latter. In the world of commerce, where the power balance is already stacked in favour of big business, upholding the modest leverage available to employees and small businesses is not just about giving people a fair go – it’s vital for New Zealand’s economic growth.

There are two key factors determining wages: productivity and bargaining power. Productive employees generate greater profits, but how much of that they can command for themselves depends on their bargaining power. Methods such as no-poaching agreements and variations on the so-called ‘inevitable disclosure doctrine’ impede this bargaining power, unfairly restricting employee mobility and causing wage stagnation.

The type of collusion practiced by Apple et al is an inexpensive way to retain employees. It’s also unethical and illegal. Employers should be creating opportunities – not eliminating them. Instead of forming alliances with other employers, identify grievances among your work force and address them. It may mean paying a higher salary or offering incentives like retention bonuses dependent on a certain number of years in service.

The boring bottom line is this: be the more attractive option. Invest in employees, treat them well, pay them better and foster an appealing, vibrant company culture. Create opportunities at your company and you won’t need to eliminate them elsewhere.

Categorised as: Talent Search & Management