Law enters the human resources space

June 2023 | EXPERT BRIEFING | COMPETITION & ANTITRUST

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While unlikely at first glance, the intersection of competition law and human resources (HR) management, has become an increasingly important issue for companies to consider. Indeed, in recent years there has been a growing trend of competition law being applied in the field of labour markets, with practical consequences for companies’ HR policies.

Background

As a general rule, antitrust laws do not exempt the labour market as they broadly apply to all agreements and concerted practices between companies. In the context of labour markets, anticompetitive practices may therefore manifest themselves in employer-to-employee relationships, in the form of non-competition clauses, or a company-to-company relationships, such as no-poaching agreements, as well as various other forms of hiring restrictions, with the objective or effect of reducing competition between employers and thus limiting the mobility of workers. In this context, a ‘no-poaching agreement’ should be understood as any agreement between two or more employers whereby each employer agrees not to hire employees of the other companies that are parties to the agreement. This type of agreement is therefore different from non-compete clauses in that an employee covered by a no-poaching agreement is not a party to the contract and is often not aware of its existence.

In October 2021, Margrethe Vestager, EU competition commissioner, announced that the European Commission (EC) would increasingly pursue so-called ‘atypical’ cartels, including notably behaviours such as wage fixing or no-poaching agreements, and notably referred to the latter as “an indirect way to keep wages down, restricting talent from moving where it serves the economy best”. She further emphasised that such agreements can be a threat to innovation in general as they can prevent new companies from breaking into markets where “the key to success is finding staff who have the right skills”. Therefore, in these cases, a promise not to hire certain people can effectively be a promise not to innovate or not to enter a new market.

These remarks should be taken as an indication that the EC is likely to launch investigations into suspected anti-competitive behaviour in the labour practices and human resources area soon.

The US has also taken more aggressive steps in recent years to increase the competitiveness of its domestic labour market, including increased enforcement actions against no-poaching agreements. In July 2021, President Biden signed an executive order in which the US Federal Trade Commission (FTC) and the US Department of Justice (DOJ) are encouraged to consider whether to revise the 2016 Antitrust Guidance to strengthen employee protection. This was followed in March 2022 by the DOJ and US Labour Department signing a memorandum of understanding to strengthen their partnership in the vigilance of the labour market against employer collusions.

In the UK, the Competition and Markets Authority (CMA) recently published a guide for employers containing advice on how to avoid anti-competitive behaviour. In this guide, the CMA addresses three types of restrictions: (i) no-poaching agreements; (ii) wage-fixing agreements; and (iii) information sharing, and emphasises these anti-competitive agreements can negatively impact labour markets, for example by reducing employees’ pay packets, reducing employee mobility and choice, and limiting a company’s ability to expand. It is also important to bear in mind that these illegal agreements or practices are not always done in writing and might take the form of informal practices sometimes known as gentleman’s agreements.

Increased scrutiny and enforcement at the EU and national levels

The draft Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements (Horizontal Guidelines), published by the EC in March 2022, contain a reference to agreements fixing wages as an example of a ‘hardcore’ restriction in the context of joint purchasing, and consider such agreements as a form of buyer cartel, which the EC views to be just as harmful as the traditional seller cartels.

In addition, in September 2022 the EC adopted new guidelines on the application of EU competition law to collective agreements regarding the working conditions of solo self-employed people, which clarify when certain self-employed people can get together to negotiate collectively better working conditions without breaching EU competition rules. These guidelines notably state that the EC will not enforce EU competition rules against collective agreements made by solo self-employed people who are in a weak negotiating position, for example when solo self-employed people face an imbalance in bargaining power due to negotiations with economically stronger companies or when they bargain collectively, pursuant to national or EU legislation.

The same trend can also be seen at the EU member state level, where national competition authorities in Portugal, France, Spain, Croatia, the Netherlands, Hungary, Poland, Greece, Lithuania and Germany have taken enforcement actions against no-poaching or waging fixing arrangements.

In 2017, the French Competition Authority (FCA) fined three PVC floor covering manufacturers a total of €302m for several anticompetitive practices, including the exchange of confidential information regarding salaries and bonuses of personnel, as well as for a ‘gentleman’s agreement’ not to poach each other’s employees. More recently, in January 2023 the French Directorate-General for Competition, Consumer Affairs and Fraud Control imposed a €148,000 fine on several metal recycling companies for having agreed to non-compete and no-poaching arrangements in the context of a transfer contract agreement.

The Portuguese competition authority also took a deeper look into the topic, resulting in the publication of a 2021 report and best practice guidelines for companies.

Wage-fixing agreements, notably in the form of exchange of information regarding salaries and other commercially sensitive information concerning the labour market, is another type of antitrust infringement that has been pursued by national competition authorities in recent years. This is not limited to salary information, but also applies to other salary components, salary ranges, employee benefits such as holidays and bonuses, and other terms of employment. Exchanging this type of commercially sensitive information between competitors, in particular if the exchanges are frequent and on up-to-date information, could be considered as a hardcore restriction of competition by the EC and national competition authorities.

Despite this increased attention, there has not yet been any decision by the EC dealing exclusively with no-poaching or wage-fixing agreements. The EC is currently investigating a standalone no-poaching agreement case, but the details remain confidential, and no decision has yet been reached.

Similarly, national competition authorities have so far taken action in the context of wider anti-competitive agreements between companies, such as those involving price fixing and market sharing. However, the EC’s increased interest could lead them to go after these types of agreements on a standalone basis.

Key takeaways for companies

Companies, and HR managers in particular, should be aware of these issues, which if investigated, either at the EU or national level, could lead to significant fines, in particular in the context of the 2021 EU Whistleblower Protection Directive, which offers protections to individuals who report breaches of EU law, including EU antitrust rules, within their companies, as these types of restrictions affecting the labour market can directly impact employees.

The EU Whistleblower Protection Directive, which entered into force on 16 December 2019, requires EU member states to provide whistleblowers working in the public and private sectors with effective channels to report breaches of EU rules confidentially and to establish a robust system of protection against retaliation, both internally within an organisation and externally to a competent public authority. EU member states had until 17 December 2021 to implement the necessary measures in their national legislation.

In addition, it should be noted that the EC considers inside knowledge and assistance to be powerful tools in helping to uncover cartels and other anti-competitive practices. The EC therefore encourages individuals who become aware of anti-competitive practices or potential breaches of competition rules to report to the EC any facts concerning past, ongoing or planned anti-competitive behaviour, the circumstances and the individuals involved, notably when their role is not publicly known. To that end, the EC has set up a single access point that can be reached by phone, email or via an anonymous whistleblower tool that was introduced in 2017. According to the EC, around 100 messages are received via these channels each year, and the information received has subsequently triggered multiple inspections both by the EC and by national competition authorities.

For these reasons, companies should ensure that their executives and key individuals involved in HR and recruitment are sensitised to the antitrust risks of entering into employment-related agreements and exchanging any employment-related information. This can be particularly challenging as companies have traditionally focused their antitrust compliance efforts on their marketing and sales departments, as well as other operational divisions – but not HR.

In that regard, HR managers, and recruiters in particular, should understand how competition law applies to no-poaching and wage fixing agreements, and refrain from discussing or entering into agreements with other employers not to recruit certain employees or not to compete on salaries or any other form of compensation, and ensure that potentially justified non-solicitation or non-compete clauses in agreements such as M&A documentation, joint ventures, distribution or franchise agreements are reviewed by antitrust counsel before agreed.

Mélanie Bruneau and Nikolaos Peristerakis are partners and Antoine de Rohan Chabot is counsel at K&L Gates GP. Ms Bruneau can be contacted on +32 2 336 1940 or by email: melanie.bruneau@klgates.com. Mr Peristerakis can be contacted on +32 2 336 1934 or by email: nikolaos.peristerakis@klgates.com. Mr de Rohan Chabot can be contacted on +32 2 336 1941 or by email: antoine.derohanchabot@klgates.com.

Mélanie Bruneau, Nikolaos Peristerakis and Antoine de Rohan Chabot

K&L Gates GP