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13 May 2024

Labour markets in the focus of competition watchdogs

Whether “no-poach“, “wage fixing” or abuse of market power – the human resources sector is increasingly becoming a matter of antitrust law

When Margrethe Vestager1 announced in October 2021 that she would step up the prosecution of no-poach and wage fixing agreements, antitrust proceedings in the human resources sector had long since ceased to be a novelty. However, the new direction has become much more noticeable internationally, in Europe and in Germany ever since.

The “new era of cartel enforcement2 announced by the Commissioner has officially begun with the raids following inspections into the food delivery service Delivery Hero and the subsidiary Glovo at its offices in Berlin and Barcelona in November 2023. The search was the European Commission’s (“Commission”) first public offensive against no-poach agreements.3 In March, a Commission repre­sentative stated that four to five investigations into no-poach agreements were currently pending.4 In April, the US competition authority published a new regulation on non-compete clauses in the employment relationship. At the beginning of May, the Commission dedicated a current “Competition Policy Brief” to antitrust law in labour markets. Back in August 2023, the Cartel Senate of the Higher Regional Court of Düsseldorf had dealt with a – somewhat different – definition of a labour market under antitrust law.

“Announced” new focus

After Margrethe Vestager specifically described no-poach agreements and wage fixing as new types of cartels in 2021, wage fixing is explicitly described as a form of buyer cartel in the Commission’s revised horizontal guidelines5 published last year.6 The prosecution of such offences therefore comes as no surprise.

Prohibited agreements

Any behaviour that restricts competition on an affected market is generally relevant under antitrust law. In the recent history of cartel prosecution, alongside the always highly rele­vant exchange of commercially sensitive infor­mation with a particular reference to the human resources sector, no-poach agreements and wage fixing have emerged as “classics” of such conduct in labour markets, which are also explicitly in focus of the Competition Policy Brief published by the Commission on 3 May 2024.7 Among other things, the Commission empha­sises the close cooperation with national competition authorities within the European Competition Network (ECN).

No-poach agreements

No-poach agreements are agreements be­tween companies in which they undertake not to “steal” employees from each other. No-poach agreements can, for example, contain provi­sions that employees of the companies involved in the agreement will not be actively poached or that employees will not be hired even if they submit an unsolicited application. No-poach agreements regularly have the potential to restrict competition on labour markets: they have a direct impact on individuals and on competition itself by keeping wages low and preventing employees from efficiently changing jobs.

No-poach agreements may be permissible under antitrust law in individual cases if they are absolutely necessary for a legitimate purpose. Such constellations are conceivable in the context of proposed transactions, production agreements or co-operations, particularly in the area of research and development. However, the permissibility of such an agreement must always be examined on a case-by-case basis.

Wage fixing and information exchange

Agreements (or the exchange of information, which is also critical under antitrust law) in the context of wage fixing can also include other employment conditions in addition to re­mu­neration. Besides wages, other factors or wor­king conditions, such as holiday, mobile device or company car arrangements or voluntary social benefits, are also relevant competitive parameters when recruiting staff.

Global prosecution: statistics and new FTC regulation

A look at the statistics clearly shows the increased attention of competition authorities worldwide with regard to behaviour on labour markets: at least 36 decisions have been issued worldwide for such cases since 2018. In addition, 13 ongoing investigations are currently known, eight of which are being investigated for no-poach agreements (in addition to the Commission’s investigations in the food delivery services sector, e.g. also in Belgium, France, Portugal, Romania and Turkey). Two pro­ceedings relate to the exchange of information (Brazil and Switzerland) and one to an agreement on labour conditions (Colombia).

Protection of competition on labour markets has recently taken on another dimension: On 23 April 2024, the US competition authority, the Federal Trade Commission (“FTC”), published a “Non-Compete Clause Rule“.8 This rule prohibits most non-competition clauses for workers (except existing non-competes for senior executives) in employment contracts as an unfair method of competition – with retro-active effect.

Germany: Market definition

It is not only the international competition authorities that are taking an ever closer look at labour markets. The Cartel Senate of the Higher Regional Court of Düsseldorf also recently dealt intensively with the definition of a labour market under antitrust law. The background to the decision of 21 August 2023 (case no. 6 U 1/23 Kart) was the allegation of abuse of a dominant market position by a company commissioned with the organisation and implementation of local public transport in the Rhine-Erft district against a professional bus driver.

Labour markets are regularly seen as procurement markets in which employers demand work (or employees offer their work). Applying the “demand-side oriented market concept”, the Düsseldorf Higher Regional Court defined the labour market very narrowly as the “labour market for bus drivers in local public transport in the Rhine-Erft district” and, in particular, as a supply market on which employers offer jobs (or employees demand them). The market definition can be important both with regard to the examination of the competitor position (ban on cartels) and the prohibition of abusive practices. In this respect, the Düsseldorf Higher Regional Court’s approach opens up a new antitrust law per-spective on labour markets.

Conclusion

The “new era of antitrust law” will be clearly noticeable in the human resources markets in the coming years. It is therefore crucial for companies to always keep antitrust law in mind in these areas as well – they must face up to the relevance of antitrust law in the area of human resources.

This publication is intended to highlight issues. It is not intended to be comprehensive nor to provide legal advice. Any liability which might arise from the reliance on the information is excluded.

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Sources

  1. Executive Vice-President of the European Commission EU fit for Digital Age and Commissioner for Competition.
  2. Speech by M. Vestager “A new era of cartel enforcement” of 22 October 2021.
  3. Commission press release of 21 November 2023
  4. Reported by PaRR on 6 March 2024.
  5. See COMMEO Newsletter of 06/2023 on the horizontal guidelines.
  6. Horizontal Guidelines, para. 316.
  7. Competition Policy Brief of the Commission of 3 May 2024.
  8. FTC press release of 23 April 2024.

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