Labor Markets in the Focus of European Competition Law
In May 2024, the European Commission published a Competition Policy Brief classifying certain agreements related to labor markets as serious antitrust infringements. According to the Commission, so-called wage-fixing and no-poach agreements can only be justified in exceptional cases. The Brief follows the first unannounced inspections by the Commission concerning labor market agreements in Germany and Spain in the online meal ordering and delivery industry. It is vital that companies operating in Europe focus on educating their recruiting and human resources departments on antitrust rules to avoid severe fines.
LABOR MARKETS ON THE AGENDA
The Commission’s Competition Policy Brief could be interpreted as a warning for companies exposed to tight labor markets: Restrictive labor market agreements between competitors will be taken as seriously as price-related cartels. Companies must also bear in mind that competitors for labor are not limited to those companies with which they compete to sell products or services. It is sufficient that they compete for the same employees.
Given that restrictions on competition in labor markets mainly affect national markets, the main investigators will be (and already are) national competition authorities.
WHAT AGREEMENTS ARE CAUGHT
The following types of labor market agreements are considered potentially problematic:
- No-poach agreements: In some cases, employers (in writing or orally) agree not to steal employees from each other. Such agreements can take different forms: In the case of nonsolicitation or no-cold-calling agreements, companies agree not to actively approach the other companies’ employees with a job opportunity. More far-reaching are no-hire agreements, i.e., companies agree not to hire (actively or passively) employees of other parties to the agreement. As a matter of principle, all forms of no-poach agreements in the Commission’s view constitute market sharing (supply-source sharing) within the meaning of Article 101(1)(c) of the Treaty on the Functioning of the European Union (TFEU) and therefore form a competition risk to be sanctioned.
- Wage-fixing agreements: Sometimes, employers agree to fix wages or other types of compensation or benefits for their respective employees. The Commission considers these agreements akin to price fixing within the meaning of Article 101(1)(a) of the TFEU.
The Commission does acknowledge that no-poach agreements may pursue a legitimate objective by incentivizing companies to invest in training their own employees without fearing that they would be later lured away by competitors, and by preventing employees from taking non-patent intellectual property rights (such as trade secrets) to competitors. However, both types of agreements “reveal a sufficient degree of harm to competition” such that the Commission does not see a need to examine their effects. Due to their alleged negative impact on employees’ wages, firm productivity and innovation, they are regarded “by their very nature” as harmful.
The above does not apply, however, to collective bargaining agreements between organizations representing employers and employees, which are explicitly outside the scope of the Commission’s Competition Policy Brief. The Court of Justice of the European Union (CJEU) recognized that certain restrictions of competition are inherent in collective agreements, which are intended, by their nature and purpose, to improve working conditions (including pay).
ACTION ITEMS
The Commission will consider the above-mentioned agreements as competition law violations without carrying out a detailed assessment of their actual effects. The analysis of potential pro-competitive effects will most likely be limited to what the Commission considers strictly necessary.
Only in rare scenarios will such labor market restrictions meet the requirements either to qualify as so-called ancillary restraints or to be exempted under Article 101(3) of the TFEU. To be accepted as an ancillary restraint, as held earlier by the CJEU in its Mastercard judgment and referenced by the Commission with regard to labor markets, a restriction must be proportionate, directly linked and objectively necessary for the implementation of the nonrestrictive business agreement (such as a cooperation or joint venture). In other words, the parties to the agreement must prove that there are no other less restrictive means available to serve the legitimate business rationale as effectively as the no-poach agreement and that, given the nature of the agreement and the characteristics of the market in question, another company in that situation (objectively) would not have joined the business agreement without a no-poach agreement. A good example of how these requirements could be assessed in practice is demonstrated by a complaint handled by the Croatian competition authority concerning the IT sector.
In this regard, EU law may be more confining than rule of reason analysis under US law, where a no-poach or no-hire provision that is reasonably tailored in scope and duration to protect a legitimate risk arising from a business agreement could be permissible.
Companies should therefore pursue less restrictive ways to retain employees or protect business secrets (e.g., nondisclosure agreements, obligations to stay with an employer for a minimum amount of time or to repay proportionate training costs, gardening leaves). Another possibility could be the execution of noncompete agreements – or clauses – with a company’s own employees. As the Commission acknowledges, such agreements are not made between undertakings and therefore are generally outside the scope of EU antitrust law. A company must nevertheless ensure that such noncompete clauses comply with national labor laws.
Regarding compliance measures, it is essential to educate not only salespeople but also human resources and recruiting departments on what constitutes an antitrust infringement. Further, no-poach agreements used in connection with M&A due diligence and negotiations, cooperation agreements or joint venture situations should also be reviewed in detail to ensure they do not go beyond what is permitted.
