Wage Watchers in Brussels - European Commission focuses on agreements in the labour market

Antitrust authorities are increasingly focused on anticompetitive agreements in the labour markets. In a recent speech held in Rome on 22 October 2021 ("A New Era of Cartel Enforcement"), EU Competition Commissioner Margrethe Vestager emphasised that the Commission will further and further pursue atypical cartels, including behaviours such as wage fixing or no-poach agreements.

Antitrust authorities are increasingly focused on anticompetitive agreements in the labour markets. In a recent speech held in Rome on 22 October 2021 ("A New Era of Cartel Enforcement"), EU Competition Commissioner Margrethe Vestager emphasised that the Commission will further and further pursue atypical cartels, including behaviours such as wage fixing or no-poach agreements. 

In combination with Vestager’s announcement of a series of dawn raids in the coming months, it cannot be ruled out that Brussels will initiate the first antitrust proceedings on collusion in the HR sector in the near future.

Cartel investigations in labour markets are no longer uncharted territory worldwide

The European Commission would by no means take on a pioneering role by initiating antitrust proceedings with regard to anticompetitive agreements in the HR sector. Internationally, several antitrust authorities are already well ahead in this respect:

  • The US Department of Justice has been prosecuting collusion in the HR sector for more than ten years, most recently even as a criminal violation. As a result of an executive order issued by US President Joe Biden on promoting economic competition, the agency declared the issue a top enforcement priority of the Antitrust Division at the beginning of October 2021 and has already initiated its first proceedings
  • The Mexican antitrust authority recently imposed fines of USD 8.8 million in the area of women's football after salary agreements between teams and federations had come to light.
  • Throughout the past year and a half, national antitrust authorities in Europe have also begun to investigate mutual no-poach agreements and the fixing of salaries in independent antitrust proceedings and have begun to impose fines, for example Lithuania, Hungary, Poland and Portugal. In Portugal, the Autoridade da Concorrência also published an issues paper in September alongside a best practices guideline for companies on the subject of competition law in the labour market. 
  • Back in mid-June of this year a committee of the Canadian Parliament called on the Canadian government to amend the Canadian Competition Act because the Competition Bureau was unable to sanction collusion between three Canadian supermarket operators over the termination of COVID-19 bonuses paid to employees. 
  • By the end of March 2021 the Brazilian competition authority, CADE, had initiated antitrust investigations against 30 companies in the healthcare sector for allegedly fixing wages and for the exchange of competitively sensitive labour market information, such as salaries, salary adjustments, and additional compensation.
  • It seems to be only a matter of time until the EU Commission and the German Bundeskartellamt will catch up by also initiating concrete investigations in this area and carrying out dawn raids (the EU Commission and the Bundeskartellamt have so far only pursued agreements in the HR sector in the cartel cases of pre-insulated pipes and television studios as annexes to more far-reaching cartel agreements). 

Antitrust assessment at a glance

Commissioner Vestager recently described agreements between competitors in labour markets as a “buyer cartel” with “a very direct effect on individuals, as well as on competition”. It is therefore worth taking a look at how European antitrust law has dealt with such agreements to date and how they are currently assessed under antitrust law.

Antitrust law also applies in the labour market

EU antitrust law does not exempt the labour market as it is in principle applicable to all agreements and concerted practices between companies. However, there is a labour market specific restriction of the applicability of the ban on cartels (Art. 101 TFEU) to employees. According to the case law of the European Court of Justice ("ECJ"), employees are excluded from the scope of Art. 101 TFEU because they do not constitute companies but are rather incorporated into them. Therefore, agreements between trade unions (being an association of employees) are not subject to antitrust law, either. Moreover, antitrust law does not cover collective agreements.

Market definition

The product market concerned is the market for labour, on which the companies compete for their (future) employees. The deciding factor for defining this market is the interchangeability of the workforce from the point of view of the companies as employers. It should be noted that companies from completely different industries can be competitors hereon. Whether the companies compete with one another on the downstream markets for the products they produce is irrelevant. 

But how far is this market to be drawn geographically? Here, the qualifications of the employees or the requirement for specific training must be taken into account above all. The higher these requirements are, the broader the geographic market is to be defined, since the company will have to consider recruiting employees who are geographically more distant as quality requirements increase. However, this is limited on the one hand by actual factors such as industry locations, language and eventually worker mobility. On the other hand, legal factors such as the requirement for residency permits and visas can also have an impact on the market definition.

Prohibited agreements in the personnel sector

Not only the current antitrust proceedings in the EU, but also previous cases in the USA show that problematic agreements in the HR area can occur especially in the form of non-poaching agreements and wage-fixing.

The Antitrust Guidance for HR Professionals of the US antitrust authorities illustrates the importance of this area: it declares salary agreements and non-solicitation agreements to be per se violations that can be sanctioned with imprisonment under US antitrust law. This should be a particular warning to companies with a connection to the United States, especially in connection with the aforementioned announcement by the Department of Justice to prioritise the examination of competition restrictions in the HR area in the future. 

No-poach agreements

There are two types of no-poach agreements. Both have in common that they are agreements between employers in which the undertakings form a sort of non-aggression pact with regards to each other’s respective workforce. They differ in that some clauses prohibit only solicitation initiated by the employer, while others even prevent employment where contact was initiated by an application of the employee. 

Both types of no-poach agreements, however, are considered equally problematic under antitrust law as both can in principle restrict competition for labour. However, this does not apply without exception: in individual cases, non-poaching agreements can be included as supplementary agreements to an otherwise compliant contract, such as a company take-over (so-called “ancillary restraint”). Here, no-poach agreements ensure the transfer of know-how and of the target’s value, of which the workforce is an integral part, and are therefore exempt from the application of antitrust law. 

Exchange of information regarding salaries and other competitive sensitive information

Another type of infringement that has been the focus of antitrust proceedings, for example in Hungary and Lithuania, is wage-fixing. It should be noted that not only agreements on salaries as such may be classified as competitively sensitive, but also – analogous to agreements on sales prices on sales markets – salary components or salary ranges. For example, the Bundeskartellamt and the French Autorité de la Concurrence have already imposed fines on the exchange of weekend and holiday bonuses (albeit ancillary to more extensive cartel agreements). 

Regarding the exchange of information between companies, the following principle must be applied: the more up-to-date the information and the more frequent the exchange, the more likely it is that antitrust authorities will assume a restriction of competition by object. According to the case law of the ECJ, even the unilateral disclosure of competitively sensitive information may be sufficient.

"Appreciable extent" and individual exemption

If an agreement is found to restrict competition, it must in principle be examined in each individual case whether the restriction of competition is also appreciable and, if so, whether it is exempted from the prohibition of restrictive agreements on the basis of efficiencies under Article 101(3) TFEU. 

In recent case law (concerning Expedia), the ECJ assumed that restrictions of competition by object always restrict competition to an appreciable extent. On supply markets, agreements fixing prices are generally classified as restrictions by object. Whether this principle can be applied analogously to wage-fixing in demand-side competition must be examined on a case-by-case basis. In its Budapest Bank decision, the ECJ rightly clarified that the concept of restriction of competition by object must be interpreted narrowly. 

Outlook

The latest statements by Commissioner Vestager provide reason to assume that the EU Commission is probably already targeting a specific labour-market-case and will soon initiate antitrust proceedings in order to set a cautionary example. Therefore, uncertainties in the application of EU antitrust law to agreements in the HR sector should not obscure the fact that the topic has now moved into the focus of the antitrust authorities. 

In addition, COVID19 has caused a backlog of antitrust dawn raids. Commissioner Vestager has therefore announced a series of (internationally coordinated) dawn raids by her authority for the coming months by the antitrust authorities in this area. In particular, they should put an emphasis on the human resources department when reviewing their antitrust compliance management systems (see our article here for more information).

 

 

Authored by Christian Ritz and Hubertus Weber
 

 

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