On May 3, 2024, the European Commission (“Commission”) published a Policy Brief (“Brief”) on antitrust in labor markets. The Brief reflects the Commission’s growing interest in restrictive labor market agreements, in particular wage-fixing and no-poach agreements.[1]
Until now, labor-related antitrust issues have received limited attention at the EU level. Despite enforcement action in the U.S. and in Europe at the national level (e.g., Portugal and Hungary),as well as a recent Commission dawn raid targeting a suspected no-poach agreement in the online ordering and delivery sector for food, groceries, and other consumer goods,[2] the Commission has to date never adopted a decision focusing purely on labor-related restrictions i.e., independently from other types of cartel behavior. While not constituting a full-fledged official policy statement the Brief nonetheless breaks new ground at the EU level and gives useful insights into the Commission’s enforcement policy.
The key conclusions of the informal Brief are: (i) enforcement of competition rules in respect of labor restrictions is likely to remain at the level of national competition authorities with the Commission intervening mostly as a coordinator; (ii) wage-fixing and no-poach agreements between companies are likely to constitute infringements ‘by object’; (iii) wage-fixing and no-poach agreement are unlikely to escape the Article 101 prohibition even in the presence of efficiency justifications except in some very rare cases.
National Enforcement
The Brief takes the view that National Competition Authorities are generally better placed to review cases involving anticompetitive practices on labor markets since these are traditionally local in scope, reflecting limited maximum commuting times for employees, language barriers, regulatory barriers, and the employees’ inability or reluctance to relocate far from their homes.[3] However, the Brief highlights that the Commission may in certain cases bring its own cases and will continue having a coordinating role within the European Competition Network. Thus, the Brief can be interpreted as a clear signal of the Commission’s readiness to support enforcement efforts against restrictive hiring policies.
Labor Market Showdown: the Commission’s Assessment of Collusive Hiring Policies
While restrictive labor market agreements can take different forms, the Brief focuses specifically on wage-fixing[4] and no-poach agreements[5]. With respect to non-compete clauses in employment contracts, the Brief clarifies that these are generally outside the scope of Article 101 TFEU, as they do not constitute agreements between undertakings.[6]
The key finding of the Brief is that both wage-fixing and no-poach agreements will in most cases automatically infringe Article 101 TFEU by object.[7] The Brief explains that labor market agreements constitute a variety of buyer cartels[8], and that wage fixing agreements are akin to purchase price-fixing prohibited under Article 101(1)(a) TFEU. No-poach agreements, will also constitute supply-source sharing expressly prohibited under Article 101(1)(c) TFEU. According to the Brief, from an economic point of view, these collusive practices have a negative effect on competition as they enable employers to exert monopsony power on potential employees and leading to lower wages, labor inefficiencies, and to reduced competition on downstream market.[9]
Given their likely harmful impact, wage-fixing and no poach cases will in most case not require any detailed analysis of their market effects except for a minimal review of the products involved and the general circumstances. In particular, the Brief indicates that this type of cases is prohibited per se even where the companies involved do not compete on the downstream market (since they arguably compete on the upstream market).
Limited Scope for Efficiency Justifications
The authors of the Brief also make it clear that wage-fixing is unlikely to fall outside of the scope of the prohibition of cartels under Article 101 or be exempted under Article 101(3) TFEU.[10] While the Brief recognizes that no-poach agreements may in certain limited circumstances arguably strengthen companies’ incentives to invest in employees’ training or R&D, it considers that net economic efficiencies are at best uncertain as these agreements may also decrease the employee’s incentive to invest in their own training. Likewise IP protection will only very rarely constitute a justification. This is because there are usually less restrictive means of achieving these objectives such as confidentiality and non-disclosure agreements, clauses providing for the repayment of proportionate training costs, or minimum employment time requirements and gardening-leave clauses, among others.
Interestingly the Brief does not examine in detail whether limited non-solicitation clauses in the context of M&A transactions or secondment agreements may be legitimate given their ancillary nature although the wording of the Brief does not seem to rule them out.
Late to the Party?
In contrast to the Commission, the Department of Justice (“DoJ”) and the Federal Trade Commission (“FTC”) have long shown interest in labor market activities. In 2010, the DoJ filed a civil complaint and announced a settlement with six tech companies related to non-solicitation agreements for highly skilled workers. In 2016, the DoJ and the FTC issued Antitrust Guidance for Human Resource Professionals and formally announced that the agencies would consider criminal prosecution of no-poach agreements and wage-fixing agreements. [11] The guidance also stated that “naked wage-fixing or no-poaching agreements among employers, whether directly or through a third-party intermediary, are per se illegal under the antitrust laws.” The DoJ has since criminally charged several employers for anticompetitive behavior on the labor market, albeit with limited success.[12] Unlike the Commission, the FTC has recently announced a rule that bans non-compete clauses nationwide, to protect “the fundamental freedom of workers to change jobs, increasing innovation, and fostering new business formation.”[13]
The Commission’s increased scrutiny of labor market agreements and its intention to make labor restrictions an enforcement priority calls for greater awareness by human resources departments when making hiring decisions. In this context, best practices could include avoiding sharing wage related information with other organizations, and relying on non-compete clauses subject to national labor law rather than on no-poach agreements. Even very limited non-solicitation clauses may require closer review.
[1] Commission Competition Policy Brief 2/2024 “Antitrust in Labour Markets,” May 3, 2024, available here.
[2] See Commission Press Release IP/23/5944, “Antitrust: Commission carries out unannounced inspections in the online food delivery sector,” November 21, 2023, available here. Delivery Hero, one of the raided companies, informed its investors that it had increased the allocated sum to pay a potential fine from €186 million to €400 million after discussions with the Commission and “subsequent detailed analysis”. See Delivery Hero Investor Notice, “Delivery Hero may face significant fine due to antitrust violations and intends to increase corresponding provision,” July 7, 2024, available here.
[3] See,for instance, Portuguese Competition Authority (Autoridade da Concorrência) Press Release 06/2022 “AdC issues sanctioning decision for anti-competitive agreement in the labor market for the first time,” April 29, 2022, available here. See also Hungarian Competition Authority (Gazdasági Versenyhivatal), Press Release VJ/61/2017, “The GVH cracked down on a cartel and imposed a fine of HUF 1 billion on HR consultants,” December 18, 2020, available here.
[4] In wage-fixing agreements, employers agree to fix employees’ compensation (including wages and non-pecuniary advantages). See the Brief, supra fn 1, at p. 2.
[5] In no-poach agreements, employers agree not to hire or recruit each other’s employees. See the Brief, supra fn 1, at p. 2.
[6] According to case law, employees do not qualify as undertakings, but are part of the business that employs them. See Jean Claude Becu and others (Case C-22/98) EU:C:1999:419, paras. 27–28.
[7] Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, OJ 2023 C 259/1, para. 279 and Guidelines on the application of Union competition law to collective agreements regarding the working conditions of solo self-employed persons, OJ 2004 C 374/2, para. 17, example 2.
[8] Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, OJ 2023 C 259/1, para. 279.
[9] Commission Competition Policy Brief 2/2024 “Antitrust in Labour Markets,” May 3, 2024, available here.
[10] A restraint must meet four cumulative conditions to be considered ancillary: (i) be directly related to a main transaction (i.e., being subordinate to its implementation and inseparably linked to it); (ii) be objectively necessary for the implementation of the main transaction; and (iii) be proportionate to the main transaction. In addition, (iv) the main transaction to which the restraint is ancillary must not restrict competition. See Communication from the Commission, Guidelines on the application of Article 81(3) of the Treaty, OJ 2004 C 101/97, para. 29, available here.
[11] U.S. Department of Justice, Antitrust Division & Federal Trade Commission, Antitrust Guidance for Human Resource Professionals (2016) (“Antitrust Guidance for Human Resource Professionals”).
[12] See Cleary Gottlieb Alert Memorandum, “Court Ends Antitrust No-Poach Trial in U.S. v. Patel with Judgement of Acquittal,” May 1, 2023, available here.
[13] FTC Press Release, “FTC Announces Rule Banning Noncompetes,” April 23, 2024, available here. A U.S. District Court has since postponed and enjoined enforcement of the FTC’s rule banning most non-compete clauses. See Cleary Gottlieb Alert Memorandum, “FTC Rule Banning Noncompetes Postponed by District Court for a Limited Number of Plaintiffs and Plaintiff-Intervenors”, July, 8, 2024, available here.