Hire and Higher? Employee Recruitment and German Merger Control
Merger control has long been a cornerstone of competition enforcement in Germany, with the Federal Cartel Office (“FCO“) known for wielding its mandate decisively and not shying away from blocking notifiable deals if they are perceived to cause competitive harm. CTS Eventim was prohibited from acquiring the booking agency Four Artists by the FCO (press release). In response, the former established a new entity and swiftly hired most of Four Artists’ staff – with the FCO finding that those moves did in fact not trigger German merger control, as FCO president Mundt stated to German media.
Recently, however, the FCO caused a stir with a press release in an AI-related case, declaring: “Taking over employees may be subject to merger control in Germany“. The “AI case“, which was a case involving AI, caused some legal scholars argue that the recruitment of key employees can trigger German merger control on a regular basis. They posit that direct hiring, that is, offering employment to (a group of) employees that move away from their former employer, can have the same effect on the market structure as “acqui-hiring” (meaning the act of buying an entire company primarily for its talent) or indeed mergers in general. They conclude that direct hiring is a form of “control”. Should one emphasize the word “may”, implying that only certain situations are covered and that pure direct employment may not be included? The legal definition of “concentration”, under German law, shows that a personnel-related transaction can only be classified as a concentration in very specific situations. For example, when hiring is accompanied with an agreement to transfer business-critical infrastructure or intangible assets. Past Practice, Present Puzzles – The FCO and Talent Transfers
The FCO dealt with employee hiring before, indicating that this is not a new issue. The FCO has historically been averse to imposing restrictions on the hiring of talent, which some might say is comforting. The FCO prevented WAZ from acquiring a 40% stake in the publisher of Ostthuringer Nachrichten.
. WAZ then launched the Ostthuringer Nachrichten, a rival newspaper, and offered jobs to the majority of the editorial staff and other employees from its former target. These employees joined WAZ and the Ostthuringer Zeitung was forced to close its doors. The FCO didn’t intervene again because it apparently did not see a merger control issue. The CTS Eventim/Four Artists merger case, which was mentioned above, resulted in the prohibition of the merger attempts. CTS formed “All Artists” while litigating the decision, and shortly after hired a large number of Four Artists employees. Four Artists then ceased operations. Again, however, the FCO declined to step in, reinforcing the precedent that employee recruitment alone does not amount to a “concentration” within the meaning of German merger control.
Despite this established line, the AI Case has sparked a debate whether the FCO is now deviating from its previous practice. In its press release, the FCO states that the hiring of certain employees together with agreements regarding the hiring and the use of key intellectual property could amount to a notifiable concentration under Section 37 of the German Act against Restraints of Competition (“
ARC
“). The FCO did clarify, however, whether the arrangement was a “control acquisition” (Section 37.1(1) No. The FCO did not specify whether it regarded the arrangement as an “asset acquisition” (Section 37.1 No. It did not elaborate on why either route was appropriate. This leaves practitioners with many unanswered questions. Were the employees viewed as “assets?” Was this a matter of gaining control? The press release of the authority offered little guidance. The authority’s press release offered little guidance.
Time, then, to explore these questions more closely.
Only Mergers in the Building? The relevant “Concentrations”, under German LawPurely direct hiring scenarios do NOT involve any transfer of shares or other corporate links. As a consequence, Section 37(1) Nos. The section 37(1) Nos. This leaves two possible avenues:Section 37(1) No. Section 37(1) No. Section 37(1) No. In 1 ARC a concentration is created if “all or substantially all of the assets of another undertaking are acquired”. Employee recruitment raises two questions:
Can they be considered “assets?”
If yes, does their hiring qualify as an “acquisition”, that is, are they at least a substantial portion of the current employer’s assets, in which full ownership has been transferred?
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(a). The Concept of “Asset”.
- By definition, an “asset is something that can either be bought or sold separately, allowing the acquirer to maintain control It must have identifiable market value and be alienable in a manner that permits an acquirer to assume it, i.e., it must be capable of transfer and of conferring ownership.
- Employees, by contrast, are not “transferred” like factories or trademarks. Their movement is governed solely by their individual autonomy and fundamental right. In a direct hire scenario, employees do not leave one firm to work for another. This is different from acquihiring, in which the current employer transfers employment contracts to the new employer. These contracts can be considered assets. By comparing employees to assets, we would be reducing them to mere tradeable items, while ignoring the fact that employers do not acquire ownership of them. According to the widely accepted interpretation of Section 37(1), No. What about the intangibles that they bring? Could know-how or customer relationships embedded in certain individuals qualify as “assets”?
Clearly, know-how and business relationships in these cases are intrinsically tied to individual employees. They are not self-sustaining resources like machinery. Nor are they comparable to proprietary intangible assets such as patents or software licences, which remain separate and identifiable irrespective of the personnel involved.
Nonetheless, German courts and legal scholars have traditionally treated know-how and customer relationships as assets. These views were generally based on conventional transactions, that is, formal purchase agreements between the seller and buyer. They also involved transferring tangible or documented intangibles assets. These assets could include documented procedural knowledge, operational manuals or client lists. They can also be complete production facilities. In the digital age, many businesses rely on knowledge workers, but maintain minimal physical infrastructure. For example, brokerage firms and recruitment agencies, whose employees work remotely. Employees’ expertise and client network effectively become the core assets of the company. Arguably, although inherently personal, these assets remain accessible to the employer through its contractual authority to direct and instruct employees, allowing it to leverage their knowledge and relationships to the company’s advantage.
So, can know-how and customer relationships alone, without the concurrent transfer of other tangible assets, legitimately be considered standalone assets under merger control law? The answer ultimately depends on how closely modern employment practices are compared to past scenarios that explicitly involved asset transfers. There is no clear case law addressing the issue of whether assets that are only in the knowledge and relationships between employees, who switch employers independently without the previous employer being involved, constitute a stand alone asset transfer.
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- (b), Full Transfer of Ownership
- The question of whether this can be considered a “transfer” according to the law is also open. In this case, the legal requirement is a “full transfer” of ownership. This concept, known in German as Vollrechtserwerb (full ownership transfer), requires that an asset acquisition result in the permanent vesting in the acquirer of substantive ownership rights, enabling the acquirer to fully and comprehensively take over the position held by previous owner. These intangible assets cannot be “owned” by an employer in the same way that intellectual property or machinery can. Employees are typically not affected by employer restrictions when it comes to their knowledge, skills, and business relationships after the employment period. It’s important to remember that “full ownership” does not necessarily mean absolute or exclusive control of the asset. A patent owner’s license is not a transfer of ownership. However, transferring a licence that already exists can be a transfer as long as it allows the new owner to assume the licensee’s previous legal and economic position. A significant counterargument is that employees are free to terminate employment at any time, whether it’s after a fixed period or if they choose, following a notice period. This inherent flexibility raises questions about whether the new employer genuinely obtains a secure and transferable legal interest in the know-how and customer contacts brought by employees.
Ultimately, this issue remains unresolved by existing case law. Nevertheless, a definitive solution is not necessary if direct hire does not meet the final criterion outlined by Section 37(1) No. 1 ARC.
01.001010(c). “All or a SubstantialPart”
Section 37.1 (1) No. 1 ARC requires that the acquiring party take over “all” or a “substantial part” of the targets assets. A “substantial part” in this sense can be assumed if the assets form the foundation of the seller’s market presence – allowing the buyer to effectively assume the seller’s market position and continue its economic activities seamlessly.
This requirement notably underscores the key distinction between direct hiring and transactions typically subject to merger control. In conventional asset transfers, the buyer and seller explicitly agree on transferring assets together. Pure direct hiring, on the other hand, involves employees who independently and individually choose to move to a different employer. Each employee hire is not a “substantial” part of the former employer’s assets when viewed individually. Even if (very rare) circumstances raise doubts, the merger control thresholds set out in Section 35 ARC that consider transaction value or turnover will never be met by a single employee hire. Consequently, and assuming theoretically that the other questions raised so far are answered in the affirmative, direct hiring might only trigger German merger control if the law allowed multiple independent hires to be combined into a single transaction.
The statutory method for combining transactions appears in Section 38(5), sentence 3 ARC (modelled after Article 5(2), subparagraph 2 EUMR), which covers asset acquisitions from the same seller to the same buyer occurring within two years. Direct hiring is clearly not covered by this provision, as the previous employer cannot be considered to be a seller, since they are not involved in the decisions of the employees. Employees cannot be classified as sellers either, because they don’t “sell” or transfer themselves as assets. This is because each employee decides their own employment situation, sometimes without the previous employer’s consent or involvement. Thus, this legal provision provides no basis for consolidating individual hiring decisions into a single merger transaction.
Besides Section 38(5) sentence 3 ARC, German case law offers another pathway to combining individual asset acquisitions into one transaction, provided that, from an economic point of view, they are brought about by a single event that is likely to influence the market structure (BGH, KVR 95/10
; OLG Dusseldorf, VI-Kart 5/16 (V)
). German case law does allow for this. While EU caselaw requires that individual events are contractually linked, German caselaw does not. What is the “single” event in direct hiring cases?
When making a decision on employment, people exercise their constitutionally protected freedom to work as private citizens. While an employee may consider whether or not former colleagues are joining the new company, most decisions are based on personal factors, such as salary and career advancement. This is especially true when the employer’s hiring decisions are staggered or opportunistic rather than systematically coordinated. This point becomes even clearer when the employer’s hiring decisions are staggered or opportunistic rather than systematically coordinated.
As employment contracts in these cases are not conditional upon on each other, will often neither be concluded nor executed simultaneously and do not involve any coordinated actions between former and new employers, the only potential “single event” could be the new employers unilateral decision to hire (en masse) with the intent of creating or expanding specific economic activities. However, considering such a decision alone as sufficient for merger control would contradict existing case law and fail to acknowledge the particular nature of the involved stakeholders, their interactions, and the contractual specifics.
Artificially grouping independently acting employees into a hypothetical unified transaction would misrepresent reality. Employees make decisions about their employment individually, not collectively regarding other colleagues or the future for an enterprise. The court decisions above also concerned cases in which a single buyer or seller agreed to the acquisition of two legally distinct businesses on the basis of a “uniform business decision”. This context shows that a single entrepreneurial decision is not enough; there must be specific transactions between the companies involved. Direct hiring starkly contrasts with this scenario, as it involves independent, individual decisions made by private individuals rather than structured negotiations between undertakings.
Additionally, assuming a single transaction in these cases would dangerously blur distinctions between transactions requiring merger control notifications and those not requiring them. If the decision to hire employees can amalgamate independent contracts in a single hypothetical transaction, then every subsequent opportunistic hiring after such a choice would need to be included. This would make it difficult to predict when the thresholds for merger notifications are reached. This would also be inconsistent with the (correct) established view that a rationale for acquisition patterns by serial purchasers, such a private equity firms or strategic investor, does not justify bundling acquisitions into a single notifiable event. The FCO’s reasoning is unclear, but the key factor could have been the alignment between the new and former employers. According to reports, the previous employer waived its right to challenge the recruitment of the new employer in a contract. This could be interpreted as consenting to the transfer. The two companies also entered into agreements regarding the financing of the future business operations of the new employer and licensing of IP. Contrary to some commentary, this scenario differs significantly from pure direct hiring – with that difference likely marking the reason the FCO assumed a “concentration” in this case.
“Control” – or Ctrl/Alt/Del?
The second – and final – avenue to consider under German merger law is the “acquisition of control” pursuant to Section 37(1) No. 2 ARC. This is the acquisition by one or more undertakings of direct or indirect control over the whole or part of another undertaking. This term is very similar to the interpretation of a’substantial portion of assets’ in Section 37(1). 1 ARC. Both concepts are based on the question of whether the acquired object represents a market position that can be transferred to the acquiring entity. In order to be consistent with EU merger controls, German law requires that a transaction of this nature confer a market presence on a permanent basis. Forecasting the duration depends on the evaluation of forward-looking scenarios, and indicators at the time the transaction was completed. In the absence of express contractual terms that indicate a temporary arrangement such as a predetermined switch from joint to sole management, control is generally assumed permanent. Direct hiring is a similar logic: unless there are concrete indications of an imminent termination, it is assumed that employment contracts will last beyond the short-term. Employees, who are the purported assets, have considerable autonomy in deciding how long they want to stay employed. This autonomy creates a level of uncertainty, as employees can terminate employment unilaterally and without consent from their employer. This disrupts the permanence of the market presence that was expected. On the other hand licensing, leasing or supply agreements, assets often acquired in conventional M&A deals, allow unilateral termination by the contracting partner without the acquirer’s consent, posing similar risks to the enduring control. If direct hiring did indeed transfer control over a part of a company, then such control could be regarded as being conferred on an ongoing basis. This depends on whether the scenario is viewed as sufficiently analogous or fundamentally different from other contractual arrangements that grant control. The distinguishing factor remains the unique position of the “asset” itself, which here retains the agency to independently determine the continuity of its status.
Notwithstanding this assessment, however, the principles outlined regarding asset acquisitions remain equally relevant: the concept of a single transaction, suitable to bundle, the individual decisions of various employees, does not apply here. Although some merger control interpretations may support the categorization of employees’ knowledge and business contacts as assets; a sufficient legal base is lacking to justify aggregating independent employment contracts, even if they were executed concurrently, into a coherent business that could be controlled. As there are no grounds in the law or decisional practice to aggregate these independent contractual relationships in a manner that fulfils the turnover or transaction value thresholds set forth in Section 35 ARC, the assessment would not even change if each employee were viewed as individually constituting a distinct business unit within the former employer’s organization; individual employees will not meet the thresholds.
It follows that without supplementary agreements between the previous and new employer – such as coordinated hiring efforts or additional asset transfers – the mere recruitment of employees, irrespective of their strategic value, fails to meet the requisite legal standard for acquiring control as stipulated in Section 37(1) No. 2 ARC. What is the current situation? Enforcement Gap vs. enforcement stretch
While it has been suggested that applying German merger controls to direct hiring is “conventional knowledge”, the analysis shows this is not true. The mere recruitment of employees, no matter how senior or skilled they are, does not constitute a “concentration” that is subject to German merger control laws. The only “assets” that can be “acquired”, regardless of the ongoing debates over the definition of “assets”, “full ownership transfer,” or the “lasting nature” of control, are the employees’ knowledge and customer relationships. These are by their nature inherently personal for the employee as a human being. This makes the legal tests to assume a single transaction especially crucial. Direct hiring, however, fails to meet these requirements. Direct hiring does not meet the test for merger control. The FCO should reaffirm that direct hiring does not constitute a merger. This is for the sake of legal clarity and the fines associated with violations of merger notification laws. This would not only be in line with established caselaw, but also with the principle that legal provisions that carry sanctions cannot be expanded through analogy or creative interpreting beyond their statutory language and purpose. This objection is not convincing. This is because harm to competitors does NOT automatically indicate a regulatory gap. In fact, such “harm” can be the result of both lawful conduct and competition in the workplace – including the competition for scarce inputs such as labour. The AI Case also shows that the “loophole” argument is grossly exaggerated to begin with. The more any dealings involving the recruitment of personnel resemble a traditional concentration, namely, showing active involvement of the previous employer and including the transfer of additional assets (with the previous employer effectively acting as a “seller”), the more likely it is a notifiable concentration may exist.
Finally, there are other legal avenues to combat hiring practices that undermine competitors’ positions and run the risk of anti-competitively excluding them from a market. If a company with certain market power aggressively poaches staff from another company, this case can be examined using the yardsticks of Article 102 TFEU as well as Sections 19 and 20, ARC. In addition, the unfair competition law (Lauterkeitsrecht) limits aggressive poaching.
Recruitment and the Limits to Merger ControlIf politicians still wish to limit certain hiring practices through merger control, they would need legislative action. Not administrative improvisation. This step would also require a careful balance of interests as it would create a new category “concentration” alongside Section 37 ARC’s current text. Such a move would have to grapple with a range of open questions, both legal and practical, including:How can the new category of concentration be defined with sufficient legal certainty? Would the merger review only be initiated for pre-trained, experienced staff? Only for employees from the same industry? Does it apply to high potential graduates? Interns? How many employees is enough – just one? How many people would be considered a group? How many people are in a group?
What must be done to consider an individual hiring act as a single concentration of employment? Do employment contracts need to be linked? How can the new legislation be reconciled to fundamental rights, such as freedom of occupation and mobility of employees? The new legislation will also have to take into consideration the constitutional principle of proportionality, especially when considering the heavy restrictions that such a rule could impose on employees in order to catch a few sensitive cases each year. This is especially difficult if only a part of the workforce was hired and that part had not been assigned to a particular business area by the previous employer. The salary of the employees is unsuitable as a benchmark, as it relates to the internal relationship between the employee and the employer, but not to the external market position that is supposedly being transferred.
Despite the considerations set out above, the FCO’s recent case – cited at the outset – demonstrates that, in practice, the picture remains muddled. Companies must assume that merger control rules may be applied to transactions that involve more than just hiring. This position was recently echoed in the EU context by DG COMP officials
, where this question is relevant to gatekeepers’ information obligations under Article 14 DMA. According to their interpretation, the transfer of employees would constitute an acquisition of controls if it involved a transfer that included key personnel, along with other important tangible and intangible assets such as IP rights, or critical know-how. This test is generally not met by pure hiring without asset transfers.
This reasoning, from Brussels, further highlights both the cross-border implications and friction between labour mobility, and the structural focus on merger rules. By staying on top of these nuances and future legislative developments, companies can avoid falling under merger control. While they can compete for talent up until the legislature redraws the lines, it is wise to monitor the FCO’s changing stance as closely and as much as any headline deal.
