Antitrust Probe Eyes Recruiting at Tech Firms

By Staff Report

Jun. 22, 2009

Recent news of an antitrust probe into recruiting practices among tech firms is shining a spotlight on employee poaching in Silicon Valley.

The federal investigation is said to explore whether tech mainstays including Google, Apple and Yahoo have agreed not to actively recruit talent from one another.

But firms acting alone have good reason to steer clear of key partners and customers when hiring, says Gary Reback, an attorney at Palo Alto, California-based law firm Carr & Ferrell. And in some situations, such as a joint venture, companies might legitimately make a pact not to recruit from each other, Reback says.

“There’s some circumstances under which even that might work,” he says.

Libby Sartain, who served as human resources head at Yahoo from 2001 until early last year, says she was not aware of any agreements with other firms with respect to where Yahoo should recruit or who should recruit from Yahoo.

The one exception, she says, was when Yahoo was in negotiations to acquire a company. When due diligence began, she says, both companies would formally agree not to recruit from each other during the process.

“Silicon Valley experiences the most intense competition for talent of any talent marketplace in the world,” she said in an e-mail interview.

Reports surfaced in early June of a Department of Justice probe into recruiting at some of the largest tech firms in Silicon Valley. Agency officials declined to comment on the matter.

A Yahoo spokeswoman said her company had been contacted by the Department of Justice and that Yahoo is cooperating. A Google spokesman also confirmed the investigation and said Google is cooperating.

“Our understanding is that a number of companies received this request for information from the U.S. Department of Justice,” biotechnology firm Genentech said in a statement. “Genentech is cooperating and will respond to the request in due course.”

Agreements to not recruit from one another could reduce competition and wages, yet there is significant churn among tech firms. A few years ago, Microsoft and Google fought in court over Kai-Fu Lee, a former Microsoft executive who defected to Google.

There’s a gentlemen’s agreement that Silicon Valley companies will not recruit from key partners, says Tim Farrelly, principal at Coit Staffing, a San Francisco-based staffing firm. For example, if a firm has a product that depends on the Facebook site, the firm won’t poach employees from Facebook.

“It’s not anything written,” Farrelly says. “You don’t want to bite the hand that feeds you.”

Sartain says she occasionally contacted an HR executive at another firm when Yahoo thought that organization employed “predatory” practices, such as holding open houses just for Yahoo employees. But, she says, “there was no agreement made not to hire, just a discussion about professionalism in recruiting practices.”

Sartain also says no company could restrict its employees from contacting Yahoo.

“We all have employee referral programs and bonuses,” she says. “So of course our employees reached out to each other.”

—Ed Frauenheim

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