Analyzing High-Tech Employee: The Do’s and Dont’s of Proving (and Disproving) Class Wide Antitrust Impact in Wage Suppression Cases

 

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Kevin W. Caves is a Senior Economist at Economists Incorporated. Hal J. Singer is a Principal at Economists Incorporated, a Senior Fellow at the Progressive Policy Institute, and an Adjunct Professor at Georgetown University’s McDonough School of Business. A longer version of this article appeared in The Antitrust Source.

In re High-Tech Employee is a high-profile class action alleging that top executives at some of Silicon Valley’s most prominent companies, including Apple, Google, Intel, and Adobe, conspired to restrict recruiting and hiring of high-tech workers as a mechanism for suppressing compensation. The court certified a class consisting of approximately 60,000 technical, creative, and research and development employees. A settlement of approximately $415 million was recently approved by the court.

The class action followed on the heels of a Department of Justice (DOJ) investigation in which DOJ concluded that the defendants had entered into a web of bilateral agreements prohibiting “cold calling,” which “disrupted the competitive market forces for employee talent” and “substantially diminished competition to the detriment of the affected employees who were likely deprived of competitively important information and access to better job opportunities.” Although the DOJ investigation culminated in a settlement barring defendants from interfering with solicitation, cold calling, and other recruiting tactics for a period of five years, no provisions were made for monetary damages.
The record in High Tech Employee provides an in-depth analysis of several topics relevant to economic analysis in class certification settings. An examination of the district court’s findings, along with the evidence proffered by experts for both plaintiffs and the defense, offers useful insights into some of the “do’s and don’ts” of proving (and disproving) classwide impact in both wage suppression cases in particular and antitrust class actions more generally.

The DOJ investigation revealed substantial documentary evidence, as well as evidence of direct communications among the defendants. For example, Apple and Google allegedly maintained internal “Do Not Call Lists” containing the names of rival companies whose employees could not be solicited. When Apple complained to Google that the agreement had been violated, Google allegedly responded with an internal investigation and subsequently reported the results to Apple. In another exchange, Apple CEO Steve Jobs allegedly warned Google founder Sergey Brin in 2005 that “[i]f you hire a single one of these people, that means war.”

The plaintiffs’ expert adopted a two-step methodology to demonstrating classwide impact. The first step required the expert to identify a plausible economic theory, along with corroborating evidence, connecting the challenged conduct to a generalized anticompetitive effect (in this case, general wage suppression). In the second step, the expert must demonstrate the existence of a plausible mechanism (such as a rigid compensation structure) that would transmit these anticompetitive effects to all or a large share of the proposed class. The court stated that the plaintiffs’ expert “followed a roadmap widely accepted in antitrust class actions that use evidence of general price effects plus evidence of a price structure to conclude that common evidence is capable of showing widespread harm to the class.”

Plaintiffs’ expert relied primarily on econometric analyses intended to show (1) that the alleged anti-solicitation agreements suppressed wages generally by imposing an informational asymmetry that inhibited the process of price discovery; and (2) that the defendants’ implicit and explicit emphasis on “internal equity”—the notion that employees doing the same work should generally receive similar compensation—created uniform and rigid compensation structures, leading to classwide impact.

In attempting to defeat class certification, the defendants and their experts relied less on quantitative analysis, focusing instead on qualitative arguments and broad methodological critiques. Defendants’ first primary argument was that compensation practices did not follow a rigid structure, and instead were highly individualized with compensation levels “set by hundreds of different managers who were directed to differentiate pay and reward high achieving employees.” However, the court found this claim of “diminished probative value” because it rested primarily on “declarations from top management in their human resources, recruitment, compensation, and benefits departments,” which were “drafted for the specific purpose of opposing plaintiffs’ class certification motion.”

Defendants’ second line of argument was that the plaintiffs’ expert’s analyses were rendered unreliable by methodological and statistical flaws. These critiques were ultimately unpersuasive to the district court, which found that plaintiffs had presented a common method of proof that combined an econometric showing of average wage suppression with econometric and documentary evidence that such suppression would have been widespread across rigid compensation structures. For example, defendants’ economists argued that plaintiffs’ regressions suffered from endogeneity bias as a result of an (unspecified) omitted variable, noting that an endogeneity problem “arises when some of the same unmeasured common factors drive both the independent and dependent variables.” The court was unpersuaded, noting that defendants had failed to specify what the omitted variable might be, or how its exclusion might have altered the results of plaintiffs’ analysis. Similarly, defendants’ experts argued at a purely conceptual level that plaintiffs’ statistical evidence did not constitute proof of causation. The court rejected this argument as well, favorably citing plaintiffs’ expert, who noted that economists “analyze correlations, which are routinely used. . . to draw causal conclusions when supported by compelling frameworks and complementary information.”

In summary, the plaintiffs’ success in obtaining class certification in High Tech Employee strongly suggests that, when the plaintiffs’ experts use econometric tools to prove impact, the defendants’ experts should reply in kind. Otherwise, defense experts risk forfeiting opportunities to convince the court that any apparent weaknesses in the plaintiffs’ proof of impact are not just technical minutiae, but actually render plaintiffs’ methods unreliable in practice. From the point of view of defendants, High-Tech Employee suggests that heavy reliance on abstract methodological critiques is a risky strategy, especially when the plaintiffs offer an econometrically intensive proof of impact. Had the defendants’ arguments been complemented by more empirical analysis to demonstrate their relevance, they might have proven more persuasive to the court.