tech feuds

Silicon Valley’s Coddled Caste System Has Been Exposed

SAN FRANCISCO - JUNE 09: Apple CEO Steve Jobs looks on before announcing the new iPhone 3G as he delivers the keynote address at the Apple Worldwide Web Developers Conference June 9, 2008 in San Francisco, California. Jobs kicked off the 2008 WWDC conference with a keynote where he announced an upgraded version of the popular iPhone called the iPhone 3G. (Photo by Justin Sullivan/Getty Images)
He strongly preferred that you didn’t hire his people. Photo: Justin Sullivan/2008 Getty Images

I’m not surprised at all,” the ex-Googler told me.

I’d asked him about the class-action lawsuit that had been filed on behalf of roughly 64,000 tech employees (including him) against firms like Google, Apple, Intel, and Adobe. The suit alleged that the executives at these firms – people like Steve Jobs, Eric Schmidt, and Sergey Brin – had colluded with each other to form no-poaching agreements, thereby keeping their employees from jumping ship to competing firms.

It had long been an open secret in the tech industry that certain companies had made these backroom arrangements to keep their most valuable employees in place. But until recently, nobody knew how explicit the deals were, or that the executives involved had put the details in ink.

The ex-Googler, who made $250,000 plus stock options in his last year as an engineer at Google, admits that he doesn’t need any money that results from the lawsuit, especially because the settlement that was struck on Thursday – a reported $300 million payout, the details of which won’t be known for several months – will only net him at most a few thousand dollars. He’s not even particularly angry about the illegal no-poaching policies, since they hadn’t resulted in any material harm to his career.

I never felt as though we were unfairly compensated,” he said. “Our salaries are, and were, absurd.”

The news of the Silicon Valley wage-collusion suit – written about most prominently by PandoDaily’s Mark Ames – hasn’t made much news outside the tech industry. But the lawsuit has already had at least one lasting effect – it has exposed the two-tier caste system within the top ranks of tech. There are the executives, who talk (and defer) to each other frequently and set the terms of engagement across the tech industry. And then there are the worker bees – the engineers, designers, and middle-managers who are seen as valuable yet replaceable, who are essentially high-cost commodities, and who are routinely left out of some of the most important decisions surrounding their careers.

The coddled image of the start-up worker doesn’t quite mesh with a victim narrative. But there are real grievances here.

For example, take this episode from 2006, which was detailed in emails released during the pretrial phase of the wage-collusion lawsuit. The backstory is that Google wanted to hire a French engineer named Jean-Marie Hullot, a former Apple employee who had helped lay the groundwork for the original iPhone, and a number of other ex-Apple engineers who had worked under Hullot. Hullot and his team members had left Apple the previous year on good terms, and Google was interested in hiring them to set up a Google engineering center in Paris. But before they did, they wanted to check with Hullot’s old boss, Steve Jobs, to make sure the hire had his blessing.

Unfortunately for Hullot and his team members, Jobs wasn’t on board. Even after Google promised that they’d stick Hullot on an assignment that had nothing to do with smartphones (and thus would ensure he wasn’t competing with Apple’s iPhone business), Jobs refused to sign off, sending this email to Google’s Alan Eustace:


We’d strongly prefer that you not hire these guys.


Jobs may have had legitimate reasons not to want Hullot working for Apple’s competitor. Maybe Hullot is the best engineer in the world. Maybe he had knowledge about the iPhone’s inner workings that would allow Google to compete more closely. But – and here’s the crucial part – Google didn’t need Steve Jobs’s permission for anything. Hullot wasn’t bound by a non-compete agreement, and Apple let him walk out the door a year earlier. If Steve Jobs didn’t want Hullot going to work for Google, he should have made him a compelling offer to come back to Apple.

That Google deferred to Jobs on the Hullot hiring, despite having no reasonable legal or ethical reason to do so, only makes sense when you know that Silicon Valley’s top-level executives often behave as a cartel – displaying more loyalty to each other, across company lines, than to their own employees – and that Steve Jobs was a particularly feared cartel leader with a retributive streak. (In 2005, Jobs wrote to Sergey Brin regarding a group of Apple employees, “if you hire a single one of these people that means war.”) Amazingly, Google’s executives feared Jobs’s disapproval more than they feared the failure of their own initiatives.

In any other industry, we’d be screaming about a qualified worker losing out on a good job opportunity because his former boss put him on a do-not-hire list. (And Hullot’s case was actually one of the milder ones detailed in the pretrial emails, since Jobs said only that he’d “strongly prefer” Hullot not being hired, and didn’t prohibit it outright.) But in tech, this kind of collusion was the status quo. As the pretrial documents show, executives at these firms made blanket promises not to recruit each others’ employees for years, causing thousands of their workers to lose out on opportunities they might otherwise have had.

I’ve asked a number of Silicon Valley executives to defend the no-poaching agreements. Nobody would do so on the record – these arrangements being illegal and all – but privately, they gave some loose rationalizations for why tech CEOs would have agreed not to poach each others’ employees. Some of them made the case that to keep innovating quickly, you need to keep product teams together. Hiring new people and negotiating counteroffers to keep existing employees is an expensive, distracting, time-consuming process, these people said, and if Eric Schmidt and Sergey Brin felt they could cut down on the amount of HR rigmarole required to run their business, it may have been worth missing out on a few talented Apple engineers. That goes double if the employees being kept around possessed valuable proprietary information that could have helped a competitor.

These arguments make a certain amount of sense. Then again, you could apply them to any industry. Don’t coal mining executives want to keep their teams together, too? Do grocery store owners enjoy spending thousands of hours a year hiring and firing people?

What makes tech different from other industries is that its workers are often so privileged that they don’t notice they’re getting the shaft. Even when they do, many engineers feel guilty advocating for more money, which is why events like this “Startup Equity Rally” in March almost always fall flat. (Keep in mind, also, that this guilt is partly deliberately cultivated by the executive class – the original impetus for giving tech employees over-the-top perks, after all, was to keep them from unionizing.) But high tech salaries and plentiful perks don’t make the executives’ advantage-taking any more ethical.

Formal no-poaching agreements are probably a thing of the past in Silicon Valley, now that the scheme has been exposed. But $300 million, the reported amount being paid out to the class-action litigants, is a slap on the wrist to the executives who have systematically distorted the tech labor market for years, and won’t deter them from making informal arrangements in the future. The rules that govern Silicon Valley’s hiring practices –  a set of gentlemen’s agreements struck by a small group of elite CEOs over handshakes and winks – will live on. And tech workers will go on enjoying their free lunches and yoga classes, unfazed by the corruption in their midst.

Silicon Valley’s Caste System Has Been Exposed