Lawsuit filed over ‘gentleman’s’ no-hire agreement between nCino, Live Oak Bank

Lawsuit filed over ‘gentleman’s’ no-hire agreement between nCino, Live Oak Bank
nCino, a Wilmington-based cloud bank software company. (Source: WECT)

WILMINGTON, N.C. (WECT) - Competition is one of the underlying principles of a free-market economy. Now, two of Wilmington’s leading technology companies are facing a possible class-action lawsuit after allegations of violations of federal antitrust law to stifle competition and keep employee pay low.

Live Oak Bank and nCino share a common family as executives from Live Oak Bank helped found nCino in 2011, however, according to allegations in the lawsuit, the companies don’t want to share their employees.,

The suit, which seeks class-action status, was filed in U.S. District Court and claims that the companies, along with a non-party, Apiture, entered into a no-hire agreement. Essentially, the claim is that the companies have all agreed not to hire employees from different companies, thus, limiting the risk of losing tech employees, while keeping competition for jobs low.

“The express purpose of the No-Hire Agreement was to prevent the companies from having to pay competitive wages to attract and retain talent,” the lawsuit reads.

The suit was filed by Joseph McAlear, a former employee of Live Oak Bank as well as Apiture (Apiture is an unnamed co-conspirator and is a joint venture between Live Oak Bank and First Data Corporation).

All three companies have roots in Wilmington and are leading financial technology companies in the city and, according to the suit, “there are no other peer financial technology companies in Wilmington.”

The claim of a no-hire agreement would stifle competition of the labor market if proven true.

“In a properly functioning and lawfully competitive labor market, nCino, Live Oak Bank, and Apiture would compete for employees by recruiting and hiring from each other. The consequence of their geographic proximity on competition for employees is profound. To work for any other potential employer in the same industry would require an employee to move to another city – at minimum, to the Research Triangle, approximately 130 miles away,” the suit states.

However, if employees had the ability to make the move to a competitor in Wilmington, that competition would drive up the pay for employees, according to the suit.

“If employers do not react to competition, their employees are likely to seek positions that offer more generous compensation and benefits elsewhere, or be receptive to recruiting by a rival employer. Once an employee has received an offer from a rival, retaining the employee may require a disruptive increase in compensation for that individual, if retention is possible at all, the lawsuit reads.

“Employers therefore have an incentive to preemptively pay their employees well enough that they are unlikely to seek or pursue outside opportunities.”

According to the suit, the early founders of nCino along with the company’s CEO Pierre Naudeé entered into the non-hire agreement from the beginning of nCino as a company, a per se violation of the Sherman Act.

The Sherman Antitrust Act is a federal law that prohibits trusts and monopolies. This particular claim says the companies violated section one of the act, which prohibits the formation of trusts.

“Broad and sweeping in scope, § 1 of the Act states that “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.” § 2 of the Act prohibits monopolization or attempts at monopolizing any aspect of interstate trade or commerce and makes the act a a felony, according to Cornell Law School.

Allegations

McAlear joined Live Oak Bank in 2017 and was hired to report to the brother of one of the founders of nCino and board member of Live Oak Bank Neil Underwood. According to the suit, when McAlear was hired, colleagues were surprised by the fact he was a Wilmington local, and many of them claimed the company only hired from outside of Wilmington.

“Mr. McAlear did not think too much about these comments until he needed to hire a new employee to report to him. Mr. McAlear conducted the interviews of prospective hires himself, but he needed to get Pete Underwood’s approval before he could even interview a candidate. Mr. McAlear noticed that Pete Underwood rejected every qualified local candidate that Mr. McAlear proposed to interview. Pete Underwood claimed that he knew every single proposed local person and that they were not good candidates, a claim which Mr. McAlear found implausible,” the lawsuit reads.

Then, in October of 2017, McAlear became the Vice President of Apiture, the joint project between Live Oak Bank and First Data Corporation.

McAlear is a specialist in what is called agile software development, over his tenure with Apiture his approach to agile was met with mixed feelings. After attending a conference in Raleigh and speaking with a recruiter from nCino, he was happy with their reaction to his approach.

“He met several representatives from nCino there, including recruiter Ren Yonker, all of whom were also very enthusiastic about agile software development. Mr. McAlear was thrilled to learn that there was another company in Wilmington that was invested in his area of expertise,” according to the suit.

After that, McAlear found a job that he believes he was qualified for and submitted an application --- a few days later --- he received the following response.

“I hope you had an enjoyable time at TriAgile on Tuesday, it was a pleasure meeting you. I talked to my Director of Recruiting and there is a “gentleman’s agreement” between our companies that we won’t recruit one another’s employees. With that being said, we will not be able to proceed with your candidacy on the Manager, Scrum Master role. I would very much enjoy to keep in touch and would be more than happy to help with coordinating an Agile Meetup group in the area.”

Disappointed, he continued to work for his company, but then, the no-hire policy was once again brought up when discussing a possible applicant who worked for nCino.

“Mr. Cook and Mr. Hill were discussing the nCino candidate right next to Mr. McAlear’s desk, when Chris Cox (then Apiture President and currently COO) came out from his office and joined the conversation. Mr. Cox informed them that he had spoken with his counterpart at nCino about hiring, and that if any employee of either company wanted to pursue a position with the other company, he or she had to inform their current manager first, and the companies collectively would decide whether the application could proceed,” the lawsuit reads.

After voicing his dissatisfaction with the policy, McAlear was let go shortly after.

Requests for comment were made to both nCino and Live Oak Bank.

“We are not going to comment on ongoing litigation. We included a statement in relation to this matter in our 10-K filing, which you can find on our investor site. Outside of that, we won’t be making any public comments,” a spokesperson for the bank stated in an email.

A spokesperson for nCino said, “As company policy, we do not comment on pending litigation. Our focus remains on our business, product innovation, and on taking care of our employees and customers around the globe.”

The 10-K filing does acknowledge the complaint, but does not list much more than that.

“On December 15, 2020, the Company received a letter from a law firm representing an individual claiming that the Company sought to restrain the mobility of employees in violation of antitrust laws by agreeing not to solicit or hire certain employees. In the letter, the individual threatens to assert claims against the Company and others on a class-action basis. No complaint has yet been filed,” according to the filing.

nCino, in a Feb. 24 filing with the U.S. Securities and Exchange Commission, stated that the company was under federal investigation by the Department of Justice over possible antitrust violations regarding its hiring practices.

In the filing, the company stated an unspecified number of its officers and employees were “served with grand jury subpoenas wherein the Antitrust Division of the Department of Justice is seeking documents and information in connection with an investigation of the Company’s hiring and wage practices.”

The Feb. 24 filing noted that the company previously received a letter from a law firm representing an individual “seeking to resolve potential civil antitrust claims against [nCino] and Live Oak Bank, a business based in Wilmington, North Carolina, relating to an alleged unlawful agreement not to solicit or hire certain employees.”

According to the filing, nCino is “fully cooperating with the authorities.”

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