No-Poaching Pacts Broke With Silicon Valley Culture

Companies that hire each other’s employees are part of the valley’s magic

4 min read

No-Poaching Pacts Broke With Silicon Valley Culture
Google's Eric Schmidt.
Photo: Daniel Acker/Bloomberg via Getty Images

Last month Apple, Google, Intel, and Adobe agreed to pay US $300 million to settle a class-action lawsuit by more than 64 000 engineers charging that so-called anti-poaching agreements violated antitrust law and reduced the salaries of the engineers involved.

The settlement avoided a long and sure-to-be entertaining trial, which would have brought out all sorts of embarrassing executive moments that would likely have quickly filtered into television or movie scripts. Indeed, documents revealed so far demonstrated a cluelessness that will be the punch line of jokes for years to come: Google’s then-CEO Eric Schmidt wrote in an email: “I don’t want to create a paper trail over which we can be sued later.” I’m sure I’m not the only one in Silicon Valley who feels a bit shortchanged by losing out on the opportunity to hear what Schmidt and other executives would have had to say on the witness stand.

But defendants were smart to settle. They were clearly on the wrong side of the law.  Cozying up to other companies to eliminate competition in the labor market violates one of the basic tenets of antitrust law. But they also violated one of the basic principles on which Silicon Valley stands—the right of employees to leave a job at what may sometimes seem like a whim, walk across the street, and get a new one.

The culture of job changing in Silicon Valley is historic. In 1957 eight men left Shockley Semiconductor Laboratory and founded Fairchild Semiconductor; William Shockley considered their move a betrayal, but history lauds the “Traitorous Eight” as the heroes who lit the entrepreneurial flame that still fuels Silicon Valley today. This constant churn of engineers moving from company to company is considered part of Silicon Valley’s magic; when ideas move and merge, they grow faster than they could in a more static environment.

Indeed, protecting this freedom of movement is the main point of antitrust law, explains Silicon Valley attorney Mary Russell, a specialist in employee stock options. “Antitrust laws encourage competitive practices and prevents stagnation in the economy. Labor—the intellectual resource that is the essence of what it means to have a tech company—needs to constantly flow to what is its most efficient use. If the flow is prevented, it’s not good for the economy.”

That churn also means that quite often the hierarchy turns inside out, people often find themselves working under someone they previously supervised. The possibility of this happening, local lore has it, is part of what makes the Valley a good place to work, because it encourages everyone to be respectful of each other, no matter what their position of the moment.

Companies find ways of enticing engineers to “walk across the street” by making sure their doors are open and inviting. Remember “Lunch 2.0?” That phenomenon started in the mid 2000s, when just a few companies, like Google and Yahoo, were offering their employees free lunches. Engineers from other companies would sneak in for a free lunch, first in twos and fours, and then in larger groups, organized over social networks. Some of the companies—and their competitors—figured that this wasn’t a bad thing. So they began inviting the growing group of lunch-crashers—as many as several hundred at a time—for elaborate food spreads, T-shirts, and other goodies. 

Lunch 2.0 faded away when Bay Area companies that offered free lunch became the norm rather than the exception, and going to visit a friend at another company for a free lunch was no big deal. In fact the possibility that engineers might “walk across the street” at any moment has been a driving force behind all the amenities offered by companies like Google and Facebook, which are designed to prevent employees from even thinking about leaving the corporate campus—even to go home for dinner.

Photo: Tekla Perry
Inside Airbnb's San Francisco headquarters.

So companies have to find more creative ways to get engineers to visit—and sometimes stay. Last month I attended a technical conference organized by Airbnb and held at the company’s San Francisco headquarters. It was designed to bring in engineers from neighboring companies that are building the infrastructure for peer-to-peer commerce, like Uber, HomeJoy, Stripe, and Eventbrite, so they can talk about common technical problems. But as I watched the crowd of young engineers in corporate-logo’ed hoodies and t-shirts, drinking agave-sweetened cola and organic lavender lemonade and nibbling on hemp guacamole as they admired the giant living-plant mural, I knew that they weren’t just thinking that the talks about pricing algorithms or managing global payments were interesting; they were thinking that Airbnb wouldn’t be a bad place to work. They were also making friends at Airbnb, who might come check out their workplaces in the near future, and perhaps stay for more than a visit.

And that’s OK, says Mike Curtis, Airbnb’s vice president of engineering. “If they do switch jobs, you have to take the long view. If an engineer feels more passionate about the work going on somewhere else, it’s right for them to be a part of that.”

“Sure,” Curtis told me, “I like to think that people can find their life’s calling here and build careers. But if you put up too many walls you are limiting opportunities to see better ways of doing things. With openness comes risk—you might have an engineer go over to a neighboring company and see something and want to be a part of that, but most times they see something, and learn something, and come back better at what they do.”

This ability, says Russell, to “flow towards what excites them means people here love what they are doing. They have enthusiasm—that’s what inspires people in the Silicon Valley environment. And it means people come and go, and that’s OK. Engineers are not the property of Steve Jobs.”

And that’s why what Apple, Google, Intel, and Adobe (and Lucasfilm, Pixar, and Intuit, who settled their portions of the case last year) did was so wrong. Instead of trying to keep their engineers happily nestled in a cocoon of free lunches and on-site dry cleaning and oil changing and movie nights (and encouraging them to invite their friends to visit) they tried to lock the virtual doors.

Frankly, they got off cheap by settling the case for $300 million, a couple of thousand dollars for each of the 64 000 engineers involved. The plaintiffs said the lost wages amounted to $3 billion, which according to antitrust law could have led to punitive damages three times that amount. In the scheme of things, says Russell, “that’s not much money at all, that’s a steal.” Maybe so, but it’s also a very visible reminder not to mess with Silicon Valley’s magic.

Follow me on Twitter @TeklaPerry

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