Federal Judge Lucy Koh surprised a lot of people last week when she denied plaintiffs’ request to approve a $324.5 million settlement that would put an end to the Silicon Valley anti-poaching class action. It’s the latest twist in a case that’s quickly becoming one of the most high-profile – and high-stakes – class actions in recent years. On one side, four of the most powerful and successful tech companies in the Unites States: Google, Inc., Apple Inc., Intel Corp., and Adobe Systems Inc. On the other, software engineers and other tech workers who claim they were denied wages and job opportunities because of an illegal agreement among the companies not to “poach” each others’ workers.
How did things get to this stage?
Allegations of secret anti-poaching agreements first came to light in 2012 as part of a federal investigation into anti-competitive practices among software companies. A lawsuit was filed, and just last year, the plaintiffs won class certification and the right to take their case to trial.
Since then, the suit has taken some strange turns. In May, lead plaintiff Michael Devine publicly criticized the proposed $324.5 million deal, urging plaintiffs and Judge Koh to fight it. Why would Devine not want Judge Koh to approve the settlement? Simple: the original suit sought $3 billion on behalf of 64,000 current and former workers. The settlement proposal, Devine said, was paltry, and his attorneys didn’t first ask for his approval before submitting it to the judge. While both sides worked to find a solution, a separate set of companies facing identical allegations – Pixar, Intuit and Lucasfilm – reached a settlement with their workers worth $37.7 million. In June, that settlement was given final approval by Judge Koh, prompting some to wonder if an end to all the suits could be just around the corner.
It wasn’t that simple, though?
Judge Koh has made no secret of the fact she thinks the plaintiffs have a strong case and convincing evidence to support their allegations. Her grant of class certification is itself a nod of approval to the plaintiffs, and was bitterly opposed by the tech companies. What’s more, Judge Koh publically warned against the proposed settlement with Google, et al in June, writing that:
“The evidence of the Defendants’ illegal conspiracy, and its intended impact, is very strong. In fact, the Defendants’ own actions reveal their valuation of the conspiracy. Just look at Google which, when Facebook rejected their illegal overture, felt compelled to raise annual compensation 10% companywide to stem the flow of employees to Facebook. This settlement, in contrast, will amount to less than 1% of compensation for each class member over the duration of the illegal agreements. That’s one tenth of the experts’ estimates of damages and is lacking in any penalty. There’s no justice for the Class in that, nor is there any real deterrent to future wrongdoing. We want a chance at achieving real justice.”
For Judge Koh, the settlement wasn’t enough. Perhaps she wanted to ensure that the plaintiffs understood the strength of their position; perhaps, equally, Michael Devine’s assertion that the plaintiffs’ interests were not always at the forefront of the attorneys’ minds made her wary of the settlement. Either way, while the settlement with Pixar, Intuit and Lucasfilm was possible because they agreed to exit before class certification (and so before knowing quite how strong the case might be), Judge Koh now seems keen to see the suit progress and to prevent the plaintiffs’ attorneys from letting Google, Apple, Intel and Adobe off too lightly.
So why exactly did Judge Koh reject the proposed settlement? Does she believe the plaintiffs should receive more money?
In her ruling, she noted that any settlement should be worth at least $380 million. But, more than that, she pointed out that with class certification approved, plaintiffs have gained the momentum, and the lower settlement simply didn’t serve their interests. Crucially, she admitted that she could think of no other case during her tenure on the bench where the plaintiffs had supplied quite so much documentary evidence to bolster their position.
That would be documents handed over by the defendants that show Lucasfilm and Pixar founder George Lucas admitting that the companies cannot afford a “bidding war” with other tech companies. Judge Koh has also referenced evidence that may show Apple boss Steve Jobs referring to the potential “war” caused by Google trying to hire his employees.
On top of that, the Department of Justice ruled in 2012 that “facially uncompetitive” agreements had undermined tech workers’ job prospects for some years and reduced their wages by artificially suppressing the true market value of Silicon Valley salaries.
What does this decision actually mean for the plaintiffs?
The fight’s still on – but the end result could mean more money. Of course, it also means the workers might get nothing. That’s the risk taken by not settling before trial: while a pre-trial settlement means guaranteed money, even if it’s not as much as they wanted, going to trial does carry risk of the plaintiffs losing the case and failing to recover any compensation.
And for Google, Apple, Intel and Adobe?
Judge Koh’s decision is bad news for them. Between the companies, $320 million is not a lot of money. (Apple reportedly has a cash reserve of $160 billion.) More important, perhaps, the settlement would have brought an end to a legal action that’s been going on for two years. It’s possible the companies will ask the judge to reconsider, but in this case, with Judge Koh’s feelings already well-documented, it’s hard to see what that would do. The next stage may well be for the lawsuit to go to trial, in which case the companies will attempt to disprove plaintiffs’ claims and demonstrate their compliance with federal antitrust law. If more evidence exists showing that company bosses knew about and promoted anti-poaching agreements, the companies will be very keen to keep it out of public. A trial’s not a good place for keeping things hidden, so it’s more than likely they’ll try for another settlement. That means going back to the negotiating table, this time in a weaker position.
What about the lawyers?
Judge Koh’s rejection of the proposed settlement is also a criticism of the plaintiffs’ attorneys. Such an implicit disapproval, along with Devine’s complaints that his lawyers did not consult him regarding the terms of the proposed settlement, could be enough for Judge Koh to remove the plaintiffs’ lawyers from the case and seek new counsel. In rare instances, judges appoint new attorneys in cases where the lawyers who originally filed a lawsuit are no longer serving the needs and best interests of the plaintiffs. At this point, there’s no indication that Judge Koh will remove the attorneys, but the option remains open.