United States: Microsoft Defeats Wage Suppression Class Action On Statute Of Limitations Grounds

Two former employees sued Microsoft Corporation ("Microsoft") in a class action, alleging that it unlawfully suppressed their wages by entering into multiple employee non-solicitation agreements with its competitors. The case – Ryan, et al. v. Microsoft Corp., No. 14-CV-4634 (N.D. Cal.) – was spawned by the same U.S. Department of Justice ("DOJ") investigation that eventually resulted in several class action wage suppression antitrust suits brought against a number of Silicon Valley technology companies. In those cases, Judge Lucy Koh of the U.S. District Court for the Northern District of California eventually approved settlements totaling $435 million. In Re High-Tech Employee Antitrust Litigation, No. 11-CV-02508, 2015 U.S. Dist. LEXIS 118051, at *12-13 (N.D. Cal. Sept. 2, 2015). In Ryan however, Judge Koh concluded that plaintiffs delayed too long before filing suit and dismissed all counts of their First Amended Complaint with prejudice. Ryan v. Microsoft Corp., 14-CV-04634, 2015 U.S. Dist. LEXIS 158944 (N.D. Cal. Nov. 23, 2015).

U.S. Department Of Justice Investigation

In 2009, the DOJ initiated an investigation of the employment and recruitment practices of a number of Silicon Valley technology companies. In 2010, the DOJ filed two lawsuits against seven different companies. Each of the defendants entered into stipulated final judgments in which they agreed to injunctions preventing them from entering into or maintaining any agreement not to solicit each other's employees. Id. at *3‑4. In 2009, the DOJ also opened an investigation into possible antitrust violations by Microsoft, but on October 29, 2014, it informed Microsoft that it would not pursue a case against it. Id. at *27.

Plaintiff's First Amended Complaint

Plaintiff's class action complaint, which was filed on October 16, 2014, asserted four causes of action under the following statutes: (1) Section 1 of the Sherman Act, 15 U.S.C. §1; (2) California's Cartwright Act, Cal. Bus & Prof. Code §16720; (3) California's Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code, §§17200, et seq.; and (4) California Business and Professions Code §§16600, et seq. Id. at *13. Each of the claims was subject to a four year statute of limitations. Accordingly, the Court concluded that Plaintiffs must allege that the causes of action accrued on or after October 16, 2010, or that the statute of limitations were tolled until at least October 16, 2010. Id. at *22. The Court had previously dismissed the Plaintiffs' original complaint on the grounds that the statutes of limitations had expired. In granting leave to amend, the Court warned that failure to cure the timeliness problem would result in dismissal of the complaint with prejudice. Id. at *18-19, 34.

Plaintiffs' Claims Accrued Before October 16, 2010

Under the Sherman Act, a claim accrues when a Defendant commits an unlawful act that injures the Plaintiff.  Plaintiffs' alleged that they were injured by the anti-solicitation agreements because they were not contacted or offered employment by competitors of Microsoft. But the last such agreement was allegedly reached in 2009. Thus, unless tolling applied, the four year statute of limitations expired in 2013. Id. at *23.

Under California law, a claim accrues when it is complete with all of its elements – wrongdoing, harm, and causation. Once again, the latest that all of those elements could have occurred would have been in 2009. Thus, without tolling, the Court concluded that the applicable statutes of limitations expired in 2013. Id. at *24-25.

No Tolling Doctrine Applied

Regarding the Sherman Act claim, the Court rejected Plaintiffs' arguments that statutory tolling should apply during the pendency of the DOJ investigation, that the continuing violation doctrine applied, and that Microsoft fraudulently concealed the violations.  Statutory tolling did not apply because the DOJ never filed a complaint against Microsoft.  Id. at *29. The continuing violation doctrine did not apply because merely maintaining the alleged unlawful agreements did not constitute an overt act necessary for application of the doctrine. Id. at *37-38. Finally, fraudulent concealment was not adequately alleged because, among other things, insufficient facts supporting the doctrine were pled to satisfy the heightened pleading requirements of Rule 9(b). Id. at *42-43.

The Court also rejected Plaintiffs' argument that the California discovery rule applied to Plaintiffs' UCL claim. While the California discovery rule might apply to a UCL claim grounded in fraud, it does not apply in cases like this one where the UCL claim involves solely unfair competition. Id. at *65.

Finally, the Court also rejected Plaintiffs' argument that California's "continuous accrual" rule applied. The "continuous accrual" rule requires a separate recurring invasion of the Plaintiff's rights. Here, while entering into a new anti-solicitation agreement could constitute a separate recurring invasion, merely maintaining an existing agreement did not.  Accordingly, the doctrine did not apply. Id. at *70.

Implication For Employers

In recent years employers have seen a rash of class actions alleging conspiracies among employers to suppress wages. Judge Koh's decision provides very favorable authority to assist an employer in defeating an untimely claim on statute of limitations grounds. For example, some courts have stated that antitrust conspiracies often involve factual circumstances known only to the conspirators and, therefore, apply a relaxed Rule 9(b) standard. Judge Koh clearly did not do so in this case and rejected the Plaintiffs' fraudulent concealment argument for failing to meet the heightened pleading standard. The ruling is also equally strong on all of the other tolling arguments raised by the Plaintiffs.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.