Competition watchdogs target labour markets

The European Commission recently published a paper [7-page PDF/453 KB] which addresses the harmful effects of wage-fixing agreements and poaching bans. It appears that the Commission intends to take stricter action against these agreements in the future, as they may fall under the prohibition of competition agreements under Article 101 of the Treaty on the Functioning of the European Union (TFEU).

The paper follows dawn raids carried out by the Commission in November 2023 at the premises of several companies suspected of participating in anticompetitive conduct that allegedly included no-poach agreements.

Arkadius Strohoff, competition law expert at Pinsent Masons, said: "In times of a shortage of skilled workers, fair competition for talent is becoming increasingly important and is attracting closer scrutiny by competition watchdogs. Antitrust law also protects competition between companies in the demand for labour. For some time now, we have been observing a growing trend of competition authorities all over the world enforcing antitrust law in the human resources (HR) area. The European Commission is now following suit with its first enforcement cases."

In ‘wage fixing’ agreements, competing employers set wages, salaries or other types of remuneration or benefits and thus prevent individual firms from competing for talent in the labour market by offering better remuneration. In ‘no-poach agreements’, employers undertake not to "steal" personnel from each other. There are two main forms of no-poach agreements: "no-hire" and "non-solicit" (also known as ‘no cold-calling') agreements. No-hire agreements generally prevent both the active hiring (direct approach from a prospective employer) and passive hiring (where a candidate applies for a position with another employer) by one company of employees from another company who is party to the no-poach agreement. Non-solicitation or no cold-calling agreements only preclude employers from actively poaching staff from another company involved in the agreement, but do not restrict passive hiring.

"The Commission's report makes one thing abundantly clear: wage-fixing agreements and poaching bans are not a trivial offence," said Dr. Michael Reich, antitrust law expert at Pinsent Masons. "Companies must also take antitrust law into account in the HR area if they want to avoid sanctions by the supervisory authorities."

"Wage-fixing and no-poach agreements generally qualify as restrictions by object under Article 101(1) TFEU," the Commission said. "While the pro-competitive effects of such agreements must be considered if demonstrated and significant, net efficiencies are uncertain and less restrictive means of achieving them are generally available."

According to the Commission’s paper, such agreements are a kind of buyers’ cartel, where wage-fixing may be classified as a form of purchase price-fixing and the prohibition of poaching is a form of market-sharing. According to the Commission, both practices are harmful to competition and employees. "Wage-fixing and no-poach agreements will in most cases qualify as restrictions by object under Article 101 TFEU and are unlikely to meet the requirements to qualify as ancillary restraints; moreover they are unlikely to meet the requirements for an exemption under Article 101(3) TFEU," the Commission said.

The Commission considers that while such agreements may in certain circumstances pursue legitimate objectives, they can also be achieved by less restrictive means via agreement between an employer and their employee, such as non-compete clauses in employment contracts, non-disclosure/confidentiality agreements, gardening leave provisions, or minimum employment period obligations.

"This means that some labour market-related agreements can be exempted from competition law regulations under certain conditions," said Dr. Reich. "However, whether they meet the requirements for this must be carefully examined."

The Commission noted that most cases involving labour market restrictions are likely to be handled by the EU's national competition authorities due to their geographic scope. However, the Commission itself is also actively investigating cases of Community dimension in the HR sector and plays a coordinating role in the European Competition Network (ECN) – a forum for cooperation between the Commission and the national competition authorities of all EU member states.

The EU is not the only jurisdiction where competition in labour markets is moving up the political and enforcement agenda. In the US, on 23 April 2024, the Federal Trade Commission announced a rule prohibiting employment non-compete clauses in all sectors. Only top executives are to be exempt from the controversial ban. The US measures go further than the EU Commission’s approach – the Commission targets wage-fixing and no-poach agreements between companies who are competing to recruit talent, but does not necessarily seek to preclude contractual restrictions between employers and their employees.

In the UK, too, anti-competitive behaviour in labour markets – particularly involving wage-fixing and no-poaching agreements – has become an area of focus for the Competition and Markets Authority.

Whilst employment non-competes have attracted less scrutiny from an antitrust perspective in the EU than in other jurisdictions, a European Commission official was recently reported as expressing concern that some companies could potentially attempt to use a combination of such non-competes, together with large-scale hires of key personnel, to seek to circumvent merger control rules. Separately, the Dutch competition authority has recently announced that it will examine potential labour market concerns as part of its in-depth merger review in the media sector.

"The Commission's new approach will have a significant impact on labour markets in the coming years," said Strohoff. "It is therefore crucial for companies to always keep an eye on antitrust law in these areas and to be aware of the relevance of antitrust law in the area of human resources."