By the looks of it, tech giants, including Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG) (NASDAQ:GOOGL), are going to be on the hook for hundreds of millions, if not billions of dollars worth of damages for colluding in hiring practices. Lawyers representing up to 64,000 employees are seeking $3 billion dollars in damages over what they allege were lost wages.

Hiring practices

Apparently (allegedly), a group of Silicon Valley’s most powerful companies made arrangements amongst themselves not to pursue employees from other firms. Under the agreement, companies would not actively recruit or hire from other companies. While some recruiting and poaching did occur, companies apparently worked together to limit such activities.

Besides Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG) (NASDAQ:GOOGL), The Walt Disney Company (NYSE:DIS)’s Pixar unit, Intuit Inc. (NASDAQ:INTU), Lucasfilm, and Adobe Systems Incorporated (NASDAQ:ADBE) are all named into the suit. Combined, these companies represent many of the biggest and most powerful firms in Silicon Valley, so their collusion in any such activities would almost certainly impact market prices.

The lawsuit claims that the anti-hiring practices were carried out between 2005 and 2009.

Hiring practices: An industry of insiders

Tech talent is relatively limited, meaning that if left to market forces competition for talent could be fierce. Companies then had considerable incentive to limit hiring amongst themselves and thus suppress wages.

It appears that the deals were brokered quietly and behind the scenes using industry insiders, such as Bill Campbell, who was the Chair of Intuit and also a close advisor to Steve Jobs. While antitrust laws prevent people from serving on the chair of competing companies, it is not so easy to regulate interaction between top level executives.

Mr. Campbell apparently acted as a go-between for Apple Inc. (NASDAQ:AAPL), Intuit Inc. (NASDAQ:INTU), and other companies, helping to put into place the anti-hiring agreements. Apparently, it started when Steve Jobs called Google Inc (NASDAQ:GOOG) (NASDAQ:GOOGL)’s executives to threaten them with “war” as Google was then considering hiring some of Apple’s employees. Mr. Campbell was sent to “make peace” between the two companies.

Instead of making peace, however, it appears that the companies instead forged an alliance. After Steve Jobs’ threat, several companies appear to have come to the conclusion that restricted hiring was good for all parties (except for the employees) involved.

Hiring practices: Why companies can’t collude

Some are questioning why the companies are being sued in the first place. After all, they were only protecting their own interests and trying to ensure the health and well-being of their company. The reason why the government works so hard to protect against such collusion is rooted in a basic understand of economics.

Collusion is considered a major issue for free market economies. According to basic economic laws, resources are best allocated when markets, not the government or companies themselves, are able to determine prices. When governments get overly involved in markets, there is a high tendency towards price distortions and inefficiency.

When companies interfere with markets, they tend to inflate final prices for customers, and lower business costs, such as employee wages. In this case, the Silicon Valley leaders were apparently trying to suppress wages, making it cheaper for them. Doing so would certainly keep costs lower for the companies themselves.

The problem with this is that it suppresses the wages of employees too and prevents them from receiving their fair market value. This results in exploitation and prevents workers from receiving the wage they deserve, which in term can result in a lower quality of life.

Hiring practices: Facebook denied “Friend” request

One company refused to join the hiring club, the then-new kid on the the block Facebook. According to court documents, Facebook refused to play the game and instead actively sought to poach talent from rival companies.

Facebook Inc (NASDAQ:FB)’s COO Sheryl Sandburg claims that she was approached by a Google Inc (NASDAQ:GOOG) (NASDAQ:GOOGL) executive with the offer to limit hiring and recruiting activities between the two companies, but claims that she rebuffed the offer.

Hiring practices: Settlement could be reached

Reportedly, a settlement might be reached for as low as $20 million dollars. Given that the current suit is for $3 billion dollars and that standing anti-trust laws could cause this amount to be tripled, the $20 million dollar sum seems absurdly low.

A judge is currently considering the offer and potential settlement. Whether or not he will accept it, given its low dollar value, remains to be seen. The courts could chose to trial next month in order to take a stronger stand against collusion and set precedence.