Commission takes labour market enforcement to the next level
Employers beware: the European Commission (EC) is strengthening its actions against anticompetitive practices in labour markets. In its recent Competition Policy Brief it takes a tough stance. According to the Commission, labour-related agreements, such as wage-fixing and no-poach agreements, are inherently harmful to competition and employers are unlikely able to justify them.
Even though most wage-fixing and no poach agreements are scooped up by the EU’s national competition authorities, an investigation at EU-level may be imminent. The EC has indicated to be “actively investigating leads” and has conducted dawn raids in this area.
All the more reason for a heightened vigilance for companies regarding employment practices by, for instance, a strategic assessment of HR processes to navigate the complexities of labour-related antitrust issues and effectively incorporating HR issues in compliance programmes. Close cooperation between a company’s in-house legal and HR staff is key to come to a workable solution on these aspects.
Heightened vigilance for employers under the EC’s watch
In recent years, labour markets have been placed under stricter scrutiny for their potential to raise antitrust concerns (see our March 2022 newsletter). This trend is clearly continuing. Wage-fixing and no-poach agreements are on the radar of many competition authorities (see for instance, the labour-related guidance by the CMA, the ACM and the Nordic competition authorities).
Given their, often national, geographic scope, most of these cases are investigated by the EU’s national competition authorities. However, the EC’s Policy Brief makes clear that the EC intends to tighten the ropes by either conducting investigations at EU-level or pursuing a coordinating role within the ECN, the European Network of Competition Authorities.
The dawn raids carried out in the sector of the online ordering and delivery of food, groceries, and other consumer goods for suspected anticompetitive conduct, including no-poach arrangements is the first concrete sign of the EC’s more active enforcement role.
The EC’s Policy Brief therefore makes a welcome tool for employers to assess their practices vis-à-vis the companies with which they compete for labour, even if those companies are not their competitors in the markets where they typically offer products or services. However, companies should be aware that the Policy Brief’s clarifications are limited to the assessment of wage-fixing and no-poach agreements, and does not provide guidance on other issues, such as the exchange of HR-related information between competitors.
Hard stance on labour-related agreements
The Policy Brief qualifies wage-fixing as price-fixing agreements and no-poach arrangements as market sharing agreements. The EC approaches labour-related agreements through the lens of a buyers’ cartel, as they carry similar effects and objectives.
Through wage-fixing agreements, employers that usually compete to attract workers may agree to set wages or other forms of employment compensation and benefits at a level below competitive market conditions. Similarly, no-poach agreements may enable employers to keep wages and compensation at a sub-optimal level. Namely, workers’ opportunities to seek better conditions elsewhere are restricted by such agreements not to poach or hire employees from each other. Moreover, these practices may cause direct harm in relevant product markets, for instance by limiting the spillover of knowledge, the efficient allocation of resources, and innovation.
Such labour-related agreements may therefore be seen as inherently harmful to competition and are consequently generally considered restrictions by object under Article 101 TFEU. This legal qualification sets a new challenge for employers, since the EC will not need to conduct an in-depth analysis of any actual effects on the market for the purposes of applying the antitrust prohibitions.
No justifications?
This begs the question whether companies will still have any room to justify engaging in such employment practices, for instance, if they seek to protect their investments into employee training or prevent their trade secrets and know-how from being taken to a competitor. The Policy Brief takes the position that wage-fixing and no-poach agreements are unlikely to be exempted under EU competition law.
While quickly dismissing the likelihood that wage-fixing agreements will produce any efficiencies, it does acknowledge that no-poach agreements might theoretically provide procompetitive benefits. However, the EC considers these benefits uncertain and often achievable through less restrictive means, such as non-compete clauses or confidentiality agreements.
Moreover, the fact that an agreement may have possible procompetitive effects or pursues a legitimate objective does not in itself exclude its qualification as a restriction by object. Employers will therefore have to justify these practices according to strict criteria. For example, if business partners agree not to poach each other’s employees in order to secure their commercial relationship (e.g. a supply agreement), they will need to prove that the labour restriction imposed is directly related to that supply agreement, objectively necessary to implement it, and proportionate. In other words, the no-poach agreement must be an essential part of the supply relationship and the less restrictive means to support it.
Conclusion
The antitrust authorities’ focus on labour markets brings about responsibilities for employers in ensuring that they comply with antitrust laws.
The EC's Policy Brief and recent national investigations signal a clear intent to crack down on anticompetitive practices in labour markets. This means that the complexities of labour-related antitrust issues must be dealt with effectively. Current HR policies should be diligently scrutinised and, to avoid problematic practices in the future, HR issues should be included in antitrust compliance programmes.
To reduce the risk of violating competition law, employers should limit the scope of non-compete or non-solicitation arrangements as much as possible, ensuring they are proportionate in terms of the employees they cover, their duration and their territorial scope. Employers should check whether alternative, less restrictive measures, such as non-disclosure clauses, repayment of training costs or gardening leave, can achieve the same objectives.
Close cooperation between a company’s in-house legal and HR departments is therefore key to reach a workable solution.
