A number of Silicon Valley’s tech giants including Apple and Google recently settled a class action case in the US relating to allegations of a conspiracy over the suppression of salaries.
The $324 million settlement came just weeks before a trial was scheduled to begin. The firms denied wrongdoing.
The recent settlement was in relation to a civil claim brought by workers and followed a U.S. Department of Justice investigation which was settled in 2010.
The case raises important issues about employment practices in highly competitive markets.
Healthy Competition in Employment Markets
Competition is a healthy part of every vibrant market place including that for employees.
In a sluggish economy or a declining industry there is likely to be an oversupply of employees and a lack of demand with a shortage of available positions. In high growth environments the opposite is often true. The specific employment market and the wider economic environment determine exactly where the balance of power lies between employer and employee but large corporate brands generally hold most of the bargaining chips.
To ensure that employment markets find their own equilibrium, in western economies they are generally subject to the same rules of competition as other markets. In the UK these rules are set out in the Competition Act 1998, the Enterprise Act 2002 and European legislation. In the US competition laws are known as antitrust laws.
Competition laws are particularly relevant to markets where there is either a single dominant player that creates an effective monopoly or where there are a limited number of powerful entities creating an oligopoly. These laws are designed for a number of purposes such as prohibiting agreements that restrict free trade and competition (cartels), banning abusive behaviour by dominant firms and preventing other anti-competitive practices.
What Was the Silicon Valley Claim About?
The Silicon Valley tech industry represents one of the hottest employment markets in the world with fierce competition on both sides as employees compete for the best jobs and employers compete for the best people.
Top Silicon Valley engineers can expect to earn six figure salaries (and way beyond) which explains why an unlawful agreement between major tech employers not to poach employees and thus avoid pushing salaries even higher might make economic sense.
It was in this context that employees accused a number of firms of entering into such non-poaching agreements in order to avoid a salary war that would have driven up wage costs across the market.
The Silicon Valley conspiracy case involved some of the biggest and wealthiest names in the tech world including Google and Apple which demonstrates just how strong the employment market is there.
The incentive to enter into agreements with competitors to reduce competition in tough markets is ever present. Although the potential benefits may prove tempting, the legal risks should not be underestimated.