Employment Related Agreements on the Agenda for Cartel Enforcement in Europe
Increased competition law scrutiny has recently entered the employment arena. Thus, it is important to be aware that agreements between employers to fix wages or not to recruit staff (so-called no-poach agreements) could result in high fines, damages claims, exclusion from public procurements and bad-will. In recent years, competition authorities in Europe and the US have shown particular interest in such agreements.
Wage-fixing and no-poach agreements
A wage-fixing agreement is an agreement between employers under which the parties collude by fixing, decreasing or capping wages, bonuses or other forms of compensation. Employers may also collude by exchanging or disclosing confidential information on wages or wage levels. A no-poach agreement is an agreement between employers which restricts the parties from recruiting or soliciting their respective employees.
Increased scrutiny into labour market agreements
In October 2021, the EU Competition Commissioner Margarethe Vestager announced that wage-fixing and no-poach agreements are on the Commission’s radar and that they can be considered as cartels. She said that such agreements can be a “way to keep wages down, restricting talent from moving where it serves the economy best”. The Commission’s Draft Revised Horizontal Guidelines, published in March 2022, address wage-fixing and no-poach agreements, considering them as by object infringements, being prohibited regardless of effect. While the Commission has not pursued such labour market agreements to date, various national competition authorities in Europe (e.g. in Portugal, the Netherlands and Romania) have done so in recent years. The Portuguese and UK Competition Authorities have also published guidelines for employers on how to avoid anti-competitive behaviour. The US Competition Authorities (FTC and DOJ) have been particularly active in this area and consider that “naked” wage-fixing (i.e. the agreements are not entered into in the context of for example an M&A transactions where there may be legitimate reasons for such agreements) and no-poach agreements constitute per se violations, i.e. by object infringements.
Potential competition concerns with labour market agreements
Wage-fixing and no-poach agreements may not only be harmful to employees in terms of lower wages and decreased opportunities for labour mobility. Consumers can also be harmed by restricted competition between employers as it may lead to less innovative outputs in downstream markets, i.e. lesser quality and variety of the goods/services produced.
What should companies do?
In the EU, cartel fines can amount to up to 10% of a company’s worldwide group turnover. Considering the increased focus on labour market agreements, in particular the Commission’s announced expansion of its cartel enforcement, companies are advised to review their hiring policies and HR practices. In particular, companies should identify any potential competition law risks with their current agreements and practices as well as ensure that HR personnel receive appropriate competition law training. The HR departments of companies should observe the following principles:
- employee wages should be set independently by companies;
- do not agree in writing or orally with another company about employee salaries or other terms of compensation;
- avoid any direct or indirect exchange of information about employee wages with competing employers (including a one-sided disclosure or receipt); and
- do not agree in writing or orally with another company to refrain from hiring and/or soliciting one another’s employees.