Labour Markets in the Spotlight of European Competition Law

(co-author: Nils Stock)

In May 2024, the European Commission published a competition policy brief classifying certain labor agreements as serious antitrust violations. According to the Commission, so-called wage-fixing and anti-seizure agreements can only be justified in exceptional cases. The brief follows the Commission’s first unannounced inspections of labor agreements in Germany and Spain in the online food ordering and delivery industry. It is imperative that companies operating in Europe focus on educating their recruitment and human resources departments on antitrust rules to avoid heavy fines.

LABOR MARKETS IN THE PROGRAM

The Commission’s competition policy memo could be interpreted as a warning to companies facing tight labour markets: Restrictive labour agreements between competitors will be treated as seriously as price cartels. Companies must also remember that competitors for labour are not limited to those companies with which they compete to sell products or services. They only need to compete for the same workers.

Given that restrictions on competition in labour markets primarily concern national markets, the main actors in the investigation will be (and already are) national competition authorities.

WHAT DEALS ARE CAUGHT

The following types of labour market agreements are considered potentially problematic:

Anti-poaching agreements: In some cases, employers (written or verbal) agree not to steal each other’s employees. Such agreements can take several forms: In the case of non-solicitation or no cold calling agreements, companies agree not to actively approach employees of other companies with job offers. More far-reaching are non-hiring agreements, iecompanies agree not to employ (actively or passively) workers of other parties to the agreement. In principle, the Commission considers that all forms of no-poach agreements constitute market sharing (sharing sources of supply) within the meaning of Article 101(1)(c) of the Treaty on the Functioning of the European Union (TFEU) and therefore constitute a risk of competition subject to sanctions.
Wage-setting agreements: Sometimes employers agree to fix wages or other types of compensation or benefits for their employees. The Commission considers these agreements to be similar to price fixing within the meaning of Article 101(1)(a) TFEU.

The Commission finds that no-poach agreements can have a legitimate purpose, encouraging companies to invest in training their own employees without fear of being lured away by competitors, and preventing employees from transferring unpatented intellectual property rights (such as trade secrets) to competitors. However, both types of agreements “disclose a sufficient degree of harm to competition” that the Commission sees no need to examine their effects. Given their alleged negative impact on employee wages, company productivity and innovation, they are considered “inherently” harmful.

This does not apply, however, to collective agreements between organisations representing employers and employees, which clearly fall outside the scope of the Commission’s Competition Policy Brief. The Court of Justice of the European Union (CJEU) has recognised that certain restrictions of competition are inherent to collective agreements which, by their nature and purpose, aim to improve working conditions (including pay).

ELEMENTS OF ACTION

The Commission will consider the above-mentioned agreements as infringements of competition law 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 labour market restrictions meet the requirements to qualify as so-called ancillary restrictions or be exempted under Article 101(3) TFEU. In order to be accepted as an ancillary restriction, as the CJEU has previously stated in its MasterCard judgment and cited by the Commission in relation to labour markets, the restriction must be proportionate, directly related and objectively necessary to implement the non-restrictive 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 implement the legitimate business justification as effectively as the non-acquisition agreement and that, given the nature of the agreement and the characteristics of the relevant market, another company in the same situation would not (objectively) have entered into the business agreement without the non-acquisition agreement. A good example of how these requirements could be assessed in practice is the complaint handled by the Croatian Competition Authority concerning the IT sector.

In this respect, EU law may be more constraining than the common sense analysis in US law, where anti-possession and anti-employment clauses may be permissible if their scope and duration are reasonably adapted to protect the legitimate risks arising from the business arrangement.

Companies should therefore look for less restrictive ways to retain employees or protect trade secrets (e.g.(e.g. confidentiality agreements, obligations to remain with the employer for a minimum period or to reimburse proportionate training costs, gardening leave). Another possibility could be to enter into non-compete agreements – or clauses – with the company’s employees. As the Commission recognises, such agreements are not concluded between companies and therefore generally fall outside the scope of EU antitrust law. However, the company must ensure that such non-compete clauses comply with national employment law.

When it comes to compliance measures, it is important to educate not only vendors but also HR and recruiting departments on what constitutes a violation of antitrust laws. In addition, no-poach agreements used in connection with due diligence and M&A negotiations, collaboration agreements or joint venture situations should be carefully reviewed to ensure they do not go beyond what is permitted.

(Show source.)