Wage-fixing is an agreement between companies relating to any aspect of the compensation paid to their employees, which competition enforcers compare to price-fixing arrangements.
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No-poach agreements are where companies agree to not solicit or hire each other’s employees, which enforcers compare with non-compete arrangements. These agreements help firms retain their key employees, while allegedly preventing the latter from learning about other career opportunities (e.g. higher wages).
This is becoming a significant financial and reputational risk that companies need to be aware of. Both arrangements are seen by antitrust authorities as so-called hardcore practice possibly leading to very high financial exposure for the companies involved. This is particularly relevant in the current context of war for talents in a number of sectors leading to a higher incentive to coordinate for undertakings in order to protect their positions.
Antitrust enforcement in the field of HR started in the US in 2010 with civil investigations against no-poach practices between Silicon Valley tech companies. This was followed by the publication of guidelines by the Department of Justice and the Federal Trade Commission in 2016.
Around the same period, European enforcers launched labour market investigations in 2010, such as those in Spain, Croatia and Hungary. The early days in Europe were marked by traditional cartels (price-fixing and market allocation) with peripheral HR aspects, rather than standalone HR cases.
But the past couple of years have seen a real turning point in Europe with at least eight cases between 2021 and 2022 compared with only three cases over the four-years period 2017-2020. Although the European Commission has not yet sanctioned any standalone HR case, National Competition Authorities (NCAs) have been particularly active with a strong focus on the sports sector.
Regulators identified a number of HR anticompetitive practices such as contract termination and withholding player salaries, imposing maximum wage levels and no-poach arrangements between clubs. The potential fines are high, as shown by the €11.3 million fine in Portugal for practices spanning only two months.
Recent developments and future challenges
While Olivier Guersent, directorate-general for competition, and vice-executive president Margrethe Vestager mentioned that HR issues will be under the Commission’s scrutiny in the coming years, one of the main challenges today is to define a solid theory of harm applicable to no-poach and wage-fixing practices.
At this stage most NCAs have adopted a 'by-object approach' easing the demonstration for antitrust regulators who do not have to demonstrate the effects of the practices on the markets concerned. But regulators will surely face strong challenges from defendants arguing that these practices are not as serious as price-fixing or market sharing infringements with a higher standard of proof to be met by antitrust authorities.
At the European level we are aware of a pending case before the French Competition Authority in the IT sector as well as one potential pending case before the Commission, which may provide further insight on how European regulators will deal with these new issues. In the UK, there is no case in the public domain, but it seems that the Competition Market Authority is also willing to look at conducts in this area.
In the mergers and acquisitions (M&A) context, non-solicitation clauses are market practice in share purchase agreements, and we do not see that changing in the near future. In Europe, these provisions are acceptable if directly related and necessary to the transaction and limited in time. In the UK, the approach is aligned with that of the EU although employment laws may take a more restrictive view on the length of a permissible non-compete clause in an employment contract.
Key recommendations for businesses
It is now time for businesses around the globe to act and update their internal compliance policies, trainings, and e-learning resources to cover HR related antitrust risks. Companies should also consider offering targeted antitrust training to HR teams.
In the M&A context, they should ensure non-solicitation covenants are reviewed by an antitrust lawyer and that possible no-poach and wage-fixing or illegitimate information exchanges concerning HR policies are covered in the due diligence processes.
Finally, undertakings must review their internal policies and procedures to ensure they are well positioned from an employment and data protection perspective to handle antitrust internal investigations, either as an internal preventive tool or in the context of an official investigation launched by an antitrust authority.
Charlotte Colin-Dubuisson is antitrust and foreign investment partner at Linklaters
