Competition and Employment – A Marriage That Does Not Allow for a Prenup

December 2023
Region: Europe

Last week, on 21 November, the European Commission announced that it has carried out a dawn raid in relation to an alleged no-poaching cartel in the food delivery market.

This is not the first time that an authority opened investigations into no-poach agreements – a deal not to hire each other’s employees - and other hiring practices: the UK’s Competition and Markets Authority (CMA) in October opened its second investigation into wage fixing and the Swiss authority in relation to 34 banks in late 2022.

Companies are facing fines of up to 10% of their total turnover – just like in a price fixing cartel. Already in 2021 Commissioner Vestager announced an increased interest by the EU in anti-competitive hiring practices.

So, is this yesterday’s news? Not at all. The European Commission taking up a case, like it just did, will put the spotlight on employment cartel law. No other authority has this effect.

Only one day later, on 22 November, the French competition authority announced that is has notified companies in the engineering, technology consultancy and IT services sectors who are accused of having implemented no-poach agreements that were aimed at prohibiting each other from soliciting and hiring their respective staff.

Earlier in October, the CMA also opened an investigation into suspected breaches of competition law in relation to the purchase of freelance services and the employment of staff supporting the production, creation and/or broadcasting of television content in the UK, excluding sport content.

There have been investigations in many other European countries including Poland, Portugal and Switzerland. Interestingly, in the US – where authorities first addressed no-poach agreements - there was a development in the other direction.

On 15 November, the US District Court for the Northern District of Texas granted a motion by the Department of Justice to voluntary dismiss indictments in what seems to be the last remaining criminal no-poach antitrust case.

The investigations referred to above relate to self-standing contacts. Non-solicitation clauses in an M&A agreement, like non-compete clauses, are exempted as ancillary to the underlying agreement: either for the duration of a joint venture or two or three years after an acquisition.

What this new development is about are non-solicitation agreements that do not have a legitimate purpose. It is essentially the same as with a non-compete clause – in the context of an M&A transaction, it is perfectly acceptable, depending on the duration. But if two company representatives agree over a drink at a conference not to compete in the future, you have a market sharing cartel. For non-solicitation/no poach agreements it is the same.

Those agreements can take many forms and the war for talent in many industries – which ultimately simply means scarcity of a raw material – is a “classic” cartel scenario. Next to the classic no-poach agreements, competition law infringements could take the form of agreeing on wages (outside of collective of bargaining agreements) or agreements not to offer a higher salary to move.

As the former EU Commissioner Vestager has put it, no-poaching agreements are “an indicated way to keep wages down, restricting talent from moving where it serves the economy best”.

The biggest challenge from a compliance perspective are information exchanges. If the conversation over a drink stops short of an agreement, but confidential and competitively relevant information is exchanged – like salary or benefit information - such information is already in and of itself a cartel infringement because, to use the terms of the European Court of Justice, “it is capable of removing uncertainties as to the anticipated conduct of the participating undertakings”.

Competition authorities have discretion as to which cases they want to pursue and rely often on whistleblowers to report suspected infringements in exchange for immunity. The commission’s investigation may therefore trigger a snowball-effect. Companies have an increased focus on HR activities which may bring those conversations to the attention of the compliance officers who would then have to decide whether to go to an authority and self-report.

The difficulty we see is that competition compliance programmes are often implemented in the sales and procurement departments, but do not include HR. Actually, the situation now is very similar to a time some years ago when cartel enforcement started for purchasing cartels and when companies extended their programmes to their procurement departments, which previously only were for the sales teams.

What is the key take-away from this development? In a nutshell: extending competition/antitrust compliance programmes to include HR teams and reviewing HR related information policies was already prudent yesterday but, by many, are still considered a nice-to-have item. It became a must-have item last week.

This article was originally published by International Employment Lawyer on 28 November 2023 and is reprinted with permission.