In our blog here, we noted EU Competition Commissioner Margrethe Vestager’s focus on the evolution of cartels in recent years, with the emergence of purchasing cartels and the focus in the US on ‘no-poach’ agreements, whereby companies agree not to recruit each other’s workers and/or fix wages. This is similar to a purchasing cartel, except that the object is not a raw material or a manufactured product, but is the employees.
Competition law infringements arising in the employment field could include agreements between (groups of) companies (i) not to hire each other’s staff members at all, or (ii) not to offer them a higher salary to move. Such agreements reduce the employees’ mobility, and can negatively affect competition by preventing new companies from breaking into markets where their success is dependent upon being able to hire employees with the right skillsets. In Ms. Vestager’s words, no-poaching agreements between employers are “an indicated way to keep wages down, restricting talent from moving where it serves the economy best”. An important aspect of cartel enforcement is information exchange which reduce uncertainty among competitors in sensitive areas, such as their purchasing price. Applied to the world of employment, this means that exchanges on individual (non-tariff) salaries – including indirectly through publications – are problematic.
As expected, those developments have caused several national authorities to pay closer attention to the topic. We have asked our European colleagues across the firm to explain where enforcement has developed further.
The UK’s Competition and Markets Authority (the “CMA”) is at the forefront of developments. On 09 February, the CMA published guidance for employers on how to avoid anti-competitive behavior. This outlines the three main ways in which anti-competitive behaviors can arise in labour markets. No-poaching agreements are the first example of anti-competitive behavior that the CMA warns against. The guidance also discusses the anti-competitive nature of wage-fixing agreements, which are agreements between two or more employers to fix employee pay or any other employee benefits. The final key anti-competitive behaviour warned against by the CMA is information sharing i.e. two or more entities sharing sensitive commercial information with anticompetitive ramifications, because of its impact on recruitment and retention in the labour market.
In its guidance, the CMA outlines a number of steps that businesses can take to ensure that they do not inadvertently engage in anti-competitive behaviour, including (i) understanding how competition law applies to no-poaching and wage-fixing agreements, (ii) ensuring that no sensitive wage or similar business information is shared with a competitor, (iii) ensuring that recruitment staff are provided with training on competition law and how it applies in the recruitment context and (iv) ensuring that they have robust internal reporting processes in place. The fundamental principles that (i) not all anti-competitive agreements are in writing and that some may take the form of informal practices and that (ii) anti-competitive agreements may also cover freelancers and contracted workers as well as salaried staff is reiterated in the guidance. Finally, the CMA makes it clear that any anti-competitive behaviour within the labour market should be reported as soon as possible.
Lately, Isabelle de Silva, former president of the French Competition Authority (the “FCA”), has stated in her farewell speech that the FCA should take stronger action on anti-competitive behaviours in the labour markets in the future. Marriage between competition law and employment is therefore not new in France and is likely to raise more and more questions.
The FCA has also already taken an interest in potential anti-trust harm in the labour markets. Since 2016, the French Regulator has issued a number of decisions and an opinion related to the interplay between competition and employment. On the one hand, the FCA has qualified as anti-competitive, certain labour-related practices as part of the “wider” cartel cases. In 2016, for example, it sanctioned various modeling agencies for collaborating, together with their professional association, price-lists fixing, and in particular, the salary to be paid to the models. The following year, companies active in the floor-covering market were sanctioned by the FCA for price fixing, no-poach agreements, and exchanges on wages. On the other hand, the French competition regulator has issued an opinion on the extension of “branch agreements” and the effects they have on competition. Branch agreements are collective labour agreements concluded between trade unions and at least one employers’ association at branch level. In France, such agreements can be expanded to make the provisions compulsory for all employees and employers included in its territorial and professional scope. However, since 2017, the French Minister of Labour has been able to refuse their extension for “reasons of general interest, in particular for excessive harm to competition”. Asked for an opinion, the FCA noted the social benefits of branch agreements, but also stated that these agreements could be anti-competitive.
In regards to non-solicitation or no-poach agreements, the French Cour de cassation recognises the validity of such clauses provided that they are proportionate to the interests that are to be protected. From a competition law perspective, the FCA has not published guidelines on non-solicitation agreements or no-poach agreements (in contrast to its English counterpart). Nevertheless, in 2017, it sanctioned the competitors in the floor-covering sector for having adopted a “tacit non-aggression agreement” or a “gentleman’s agreement”. This agreement prohibited the companies from actively soliciting each other’s employees for a number of years. The FCA stated that this agreement, effectively, a no-poach agreement, was a part of a complex and continuous infringement with an anti-competitive object.
In contrast to the UK, there are no general or specific guidelines available from the antitrust regulator in Poland (“UOKIK”) when it comes to non-solicitation or non-poaching agreements. However, this does not mean that such acts do not happen in practice, or that the Polish regulator is unaware or not concerned. UOKIK notes interest in such practices from the US, UK and EU regulators and looks at them from the perspective of agreements between entrepreneurs which prevent, restrict, or distort competition but also possibly will allow some exceptions under doctrine of ancillary restraints (i.e., any restriction which is directly related and necessary to the implementation of a main agreement). Their specific focus would be on wage-fixing or no-poach agreements.
There are no provisions in the Polish Labour Code dealing with poaching of employees. However, under article 12 of the Fair Trading Act, it is considered an unfair trading practice to induce a person employed by an entrepreneur on the basis of an employment relationship or other legal basis to neglect or improperly perform his/her duties or other contractual obligations for personal gain or for the benefit of a third person, or to cause a disadvantage to the entrepreneur. This restriction assumes that inducing non-performance or improper performance of the contract is an unfair trading practice.
The German competition authority has not published specific legal guidance. However, it is clear that no-poach agreements could form a competition law infringement and be subject to investigations and fines.
The position in Spain is in line with that in Germany. There have been no stand-alone cases so far of no-poaching or other labour practices tried as competition restrictions. Nor have there been any policy statements from the competition authority on the topic.
To date, the Czech competition authority (“UOHS”) has not issued any specific guidelines concerning inter-employer agreements. Neither is there yet any specific case law from the Czech courts regarding this issue, though that does not mean that the no-poach and wage-fixing agreements would not be subject to the Czech competition law in an appropriate case. While assessing these it is likely that the UOHS will also take into account case law from other jurisdictions, especially other EU countries.
In the case of acquisitions and joint ventures, inter-employer arrangements are normally accepted by the competition authorities if they are part of the transaction, are necessary for its implementation and are limited in time and geography. For example, the European Commission has found a non-solicitation commitment for specific senior employees of the target company to be permissible in the context of a merger clearance. Outside the M&A area, a non-solicitation commitment may also be justified if it is part of a broader co-operation between the parties and is proportionate to that cooperation. In any event, the commitment should always be limited in time and should only apply to selected employees (e.g. those in whom the employer has invested a large amount of resources for training and know-how transfer and so whose loss to a competitor would pose a particular threat to the business).
In Belgium, there is no case law on this matter nor any guidelines. However several investigations in to the labour market appear to have been carried out by the Belgian Competition Authority. Furthermore, in 2022 the Belgian Regulator’s budget was increased, allowing it to have more resources “to deal with new challenges such as competition in the labour market“. Further developments in this area seem only a matter of time.
No-poach agreements are legal in Belgium, provided that they are limited in time and space, restricted to a specific activity and grant the employee a level of financial compensation. It appears that the Belgian Regulator has not yet assessed the prospective anti-trust harm of such clauses. However, the Belgian Competition Authority has indicated that it will take more stringent action on concentrated practices in the world of sport, with particular focus on no-poach agreements.
The matter is also further progressing in the United States, as explained in a previous blog here.
* * *
The heightened attention of the European Commission and national authorities to this matter collides squarely with the war for talent that most employers are currently facing and that may encourage them to consider precisely those arrangements that have now come under scrutiny. They will need to tread a careful line between measures to retain their own staff and the information and connections they possess on the one hand and not unnecessarily restricting their own ability to hire exactly such people out of their competitors.
Companies will need to be extra careful when they discuss their approach on how to face the challenges in the employment market. Company policies and training may have to be revised to address situations where these discussions are taken outside the company to (informal) platforms organized on an industry level. Where the HR team may have traditionally not been included in competition training sessions, it is recommended to extend the invitation to them going forward. Lastly, this may be a suitable time to review the template employment and service agreements to ensure that they will be compliant.
Our teams in Europe and the United States remain available for any questions that you may have on the topic. For further background reading, our joint Labour law / Competition team has also published an academic article ‘Towards an Employment Cartel Law‘ on the issue.
Thank you to the following colleagues for also contributing to this blog post: Malgorzata Grzelak, Ignacio Regojo, Gorka Navea, Floriane Essling, Lutz Hoheisel, Jaroslav Tajbr, and Mathilde Courtois.