TOPICS > Economy

Tech companies settle wages lawsuit for $325 million

April 26, 2014 at 5:28 PM EDT
Major tech companies including Apple, Adobe, Google and Intel have settled a huge class action lawsuit alleging they colluded not to go after each others’ employees, effectively holding down salaries. Alison Stewart talks with Arik Hessedahl of Re/code about the economic and social tensions troubling Silicon Valley.

ALISON STEWART:  Major Silicon Valley tech companies including Apple, Adobe, Google and Intel have settled a huge class action lawsuit alleging they colluded not to go after each others’ employees, effectively holding down salaries. The settlement reportedly was for about $325 million. For more about this, we are joined by Arik Hesseldahl. He’s a senior editor at Re/code.

So that’s the headline, Arik.

Let’s get into the nitty gritty details. How many workers are we talking about? What did they allege these companies did? Did one CEO call up another and say don’t hire my guy?

ARIK HESSELDAHL: Yeah, what we’re talking about is about 64,000 people who joined the class in this lawsuit, and it was the companies that you mentioned, and what we’re talking about is essentially an unwritten agreement, kind of a quiet understanding between Steve Jobs and Eric Schmidt when he was CEO of Google and Paul Otellini when he was CEO of Intel and some of the others. And engineers are essentially the key people in a lot of these things. And you know the job competition is very fierce. And so there were especially colorful emails that had emerged as evidence in the trial, and I think the companies didn’t want to see those emails exposed. I mean they’ve been exposed, but there would have been a lot more, I think, information, a lot more disclosures that would have been just as colorful.

ALISON STEWART:  Is that why this was settled?

ARIK HESSELDAHL:  I think so. I think this is being described as kind of a bargain. The plaintiffs were seeking three billion dollars and had they prevailed it would have allowed trouble damages so that would have made it nine billion dollars. It’s money that those companies could afford. They all collectively have more than 200 billion dollars in cash on their balance sheets, but you know you don’t want to have to pay that kind of money. So, but I was surprised by the amount. I mean it actually works out to just a few thousand dollars per employee. The lawyers will take a cut, about nine million for their expenses and fees. And then the lead plaintiffs will probably make, get back some larger payments, but you know most of the people who are members of the class will, a few thousand dollars.

ALISON STEWART:  But it isn’t kind of a principal of the thing? You have very, very talented people in the tech center who want to be paid for their talent. And essentially what these companies allegedly did was saying we’re not necessarily going to pay you for your talent.

ARIK HESSELDAHL:  Exactly. What it ultimately did, these companies are always first to talk about how quickly they want to work in an unfettered marketplace and not have any extra regulation holding them down, and yet, you know, through this kind of, the evidence that’s been shown so far at least showed that they colluded to not extend that same courtesy to their own employees. And the long-term effect was that it had the effect of holding down their salaries. And so, that is now, now the Justice Department was the one that first brought this to light. They brought an investigation in 2009, and they settled in 2010. So these companies have been arguing, have been operating under sort of a – I wouldn’t call it a consent degree, but it’s kind of an agreement without any financial penalties that they would not do this. There’s no poaching policy is enforced. It expires in 2015, but what I think it’s going to mean is that there may be some, may be some higher wages. I mean it’s much more free work place, move between work places for these employees.

ALISON STEWART:  This comes at an interesting time for Silicon Valley which has experienced a bit of a backlash. We’ve heard about the protests in front of the busses that ferry people to the various campuses of these big companies, reports about people having their 1500-hundred dollar Google Glasses ripped off of their faces, Smart Cars being overturned in California. It’s what Wired magazine, an op-ed, I’m going to read this headline to you: “Silicon Valley Needs to Lose the Arrogance or Risk Destruction.” Overstated or is it really a problem?

ARIK HESSELDAHL:  There is a social moment. There is a big political moment. Sensitivities are very high. And I think that’s another reason why these companies would probably rather settle and put this case to rest, and write a relatively small check. The appearances in light of this social and political moment that’s occurring right now. The optics would have just been absolutely devastating. The fact that, you know, that they had this unwritten agreement to basically hold down salaries.

ALISON STEWART:  When the CEOs are making so much money. And the companies are making so much money.

ARIK HESSELDAHL:  Precisely. Precisely.

ALISON STEWART:  Arik Hesseldahl from Re/Code. Thanks so much.