Competition law and no-poach agreements: developments in Europe

Introduction – ‘a new era of cartel enforcement’

‘Two thousand years ago, the emperor Augustus (…) laid down that “anyone who commits any act or forms any association by means of which the price of provisions may be increased” would have to pay a fine…’ said the European Union (“EU”) Commissioner for Competition,[1] Margrethe Vestager, during a speech titled ‘A New Era Of Cartel Enforcement’ in October 2021. She was addressing the Italian Antitrust Association Annual Conference in Rome, which she referred to as the ‘birthplace of competition law.’[2] Most notable about that speech, however, was not the Commissioner’s historic acumen, but rather the hot button competition law topics she mentioned. Competition law, the more commonly used European term for “antitrust,” has recently seen a few growing areas of interest. This includes the increase in focus on the interaction between competition and labor (or “employment”) law, with so called “no-poach” agreements being one of the latest issues in this sphere coming to the fore.

Background – what are no-poach agreements? 

No-poach agreements are agreements made between competing businesses to collude with respect to their hiring practices, for example in terms of not hiring each other’s employees or coordinating the level of pay offered to employees. As noted by Oxera Consulting, an economics and finance consultancy,[3] employees usually lack awareness of these agreements in contrast to other forms of agreement in the employment market, such as non-compete clauses. The key difference between non-compete clauses and no-poach agreements is that employees will ordinarily be aware of a non-compete clause in their employment contract, which – at least in theory – may give them the opportunity to negotiate its terms. However, this usually is not possible in the case of no-poach agreements.

The economic perspective

As reported in various discussion papers,[4] the common assumption (including in the EU) is that the employment markets fall within the purview of competition law. As explained by Oxera,[5] the economic theory assumes that in perfectly competitive employment markets there are multiple employees on the supply side and multiple employers on the demand side, and each side has comparable bargaining power. In this setting, broadly, wages are competitive, and workers can expect a wage that represents the incremental value they create. No-poach agreements aim to shift the bargaining power in favor of the employers and, as opposed to some forms of efficiency-driven group input purchasing arrangements, no-poach agreements may be used simply to increase the profits of the employer at the expense of the other participants in a given market.

The workforce is not homogenous and there are various types of employment contracts which offer varying degree of protection to employees. Accordingly, the extent to which employment law can intervene to address power imbalances can be limited in some instances. There is therefore a clear case for competition law playing a role in dealing with the relationships between employers and employees on a market-wide basis. 

Relevant EU competition law

The key provisions regulating competition in the EU are laid down in the Treaty on the Functioning of the European Union (“TFEU”).

Article 101(1) TFEU prohibits “all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States, and which have as their object or effect the prevention, restriction or distortion of competition within the internal market.”[6]

There are two main types of Article 101 infringements – ones that are anticompetitive “by object” and ones that are anticompetitive “by effect.” “By object” infringements are similar to the concept of a per se violation in US antitrust, whereby the conduct by its very nature is likely to have harmful effects on the market (e.g. hardcore price-fixing cartels). “By effect” infringements involve behavior that is not inherently harmful but may nevertheless be found to be anticompetitive when its impact on the market is examined in more detail.[7]

In the event a practice is caught by the Article 101(1) prohibition, Article 101(3) TFEU contains a cumulative list of conditions under which the Article 101(1) prohibition against anti-competitive conduct will not be applied. To benefit from the Article 101(3) exemption, the conduct must be shown to (i) contribute to improving the production or distribution of goods or to promoting technical or economic progress, (ii) while allowing consumers a fair share of the resulting benefit, and (iii) not impose restrictions which are not indispensable to the attainment of the objectives of that conduct, and (iv) not afford the possibility of eliminating competition in respect of a substantial part of the products in question.

Article 102 TFEU applies to monopolistic behavior, which in the EU is more commonly referred to as an “abuse of the dominant position” in the market: “Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States…”[8]

The countries which are members of the EU (“Member States”) have equivalent provisions in their respective domestic laws, but they also concurrently apply the Article 101 and 102 TFEU prohibitions when they consider that the conduct in question, even if geographically confined to one country, may affect trade[9] between the Member States. Since its exit from the EU on January 31st 2020, the United Kingdom will only apply its domestic provisions when investigating anti-competitive practices.

In principle, the EU competition policy and the prohibitions above apply to employment markets. However, it is important to note that competition law only regulates ‘undertakings,’ i.e. entities engaged in ‘economic activity,’ regardless of their legal status or the way in which they are financed; ‘economic activity’ means any activity consisting in offering goods or services.

As a result, certain aspects of employment related to trade unions and collective bargaining fall outside the scope of EU competition law:

  • In the context of collective negotiations with employers, employees are not classified as ‘undertakings.’[10] Accordingly, any collective agreement reached as a result is not an agreement between ‘undertakings’ and cannot be caught by Article 101(1). A trade union representing employees in these negotiations is equally not treated as an ‘association of undertakings.’
  • When employees in one industry bargain collectively with all employers in that sector, the European Court of Justice (“ECJ”) (e.g. a pension fund covering the textile industry in the Netherlands)[11] considered this may also fall outside the scope of application of Article 101 TFEU so long as the collective arrangements between the employers and employees result in improving employment and working conditions.[12]
  • The position is more nuanced in respect of the self-employed workers. However, in December 2021, the European Commission (“EC”) published draft Guidelines which aim to make it possible for self-employed individuals to engage in collective bargaining and avoid being classified as a cartel.[13] 

European competition law cases with an employment aspect

The EC and several national competition authorities (“NCAs”)/judicial bodies of the Member States have made in-roads into employment related issues more generally on more than several occasions. For example:

European Union

The EC has previously considered anticompetitive conduct involving poaching a competitor’s employees. In its decision of October 21st 1998 in Case COMP IV/35.691/E.4 — Pre-insulated pipes, it fined pre-insulated pipe producers for their participation in a cartel in the district heating sector in Europe. The cartelists took steps to eliminate Powerpipe, a company that refused to take part in the cartel. The decision, in particular, refers to a campaign carried out by two of Powerpipe’s main competitors to lure Powerpipe’s employees, in particular the managing directors, by offering them salaries and employment terms which were unprecedented in the industry. Powerpipe suggested that the prime purpose of this tactic was to undermine Powerpipe’s position in the market by, firstly, obtaining internal commercially sensitive information and, secondly, adversely affecting its relations with customers until staff replacements could be found.

More recently, in 2017, the EC issued a decision against the International Skating Union (“ISU”) in relation to restrictive penalties imposed by it on professional ice skaters under its eligibility rules. The eligibility rules required speed skaters to participate only in competitions that were approved by the ISU. In case this requirement was not observed, the athletes could face up to a lifetime ban from all major international speed skating events. The ISU was able to impose penalties at its own discretion, even in the circumstances where the independent competitions posed no risk to its legitimate sports objectives. ISU’s conduct had therefore restricted competition by enabling the ISU to favor its own commercial interest to the detriment of athletes by limiting their commercial freedom.[14] 

Germany

In Germany, the NCA fined[15] three broadcasting companies on July 26th, 2016, for having exchanged sensitive business information, including in particular prices and variable costs, such as energy, gas/oil and water – as such costs make up a large proportion of overall costs and therefore play a significant part of their businesses. As part of this information exchange, the companies also shared sensitive information about costs of staff, including weekend and public holiday pay rates for employees, and corresponding insurance costs.[16] The German NCA found this behavior, including the employment-related exchange of information, to be in breach of the German competition law equivalent to Article 101(1) TFEU.[17]

Lithuania

In 2021, Lithuania’s NCA found that the Lithuanian Basketball League and 10 national basketball teams concluded anticompetitive agreements not to pay the basketball players after the termination of the basketball championship season 2019/2020 due to COVID-19.[18] The contemporaneous email exchanges considered by the authority suggested that the team representatives policed compliance with the arrangement.

Poland

In 2021, the Polish NCA opened two investigations into collusive conduct affecting the levels of remuneration in the sports sector. One, similar to the investigation in Lithuania, against the Polish Basketball League and its member teams, which, as a response to the adverse impact of COVID-19 on the sports industry, agreed to the terms on which they would terminate the players’ contracts and withhold their salaries.[19] Another, against speedway teams which allegedly entered agreements concerning maximum levels of and cuts to the wages paid to the motorcycle speedway riders.[20]

United Kingdom

A case that has gained considerable publicity in the UK was a challenge in 2019/2020 by a rugby club, Saracens, of wage caps imposed on it by Premiership Rugby (a professional rugby union competition in England).[21] This case was not, however, heard by a court or a competition authority, but rather by an Independent Disciplinary Panel (“Panel”). Premiership Rugby sought to sanction Saracens on the ground that they were in breach of its regulations by exceeding the prescribed caps. Saracens argued that the salary caps violated competition law rules because they prevented the club from competing to attract the best players. The Panel was not convinced by the competition law arguments advanced by Saracens, and stated that they had failed to point to the relevant market on which competition would be restricted or show how the clubs would compete in the counterfactual world, and that there was no previous case law to support the contention that the caps would constitute an infringement “by object.”[22]

Treatment of no-poach agreements by the EC and National Competition Authorities

European Union

The EC has not yet dealt with no-poach agreements in the context of competition law; however, they seem to be on its radar. In her 2021 speech, Commissioner Vestager made it clear that price-fixing cartels and market-sharing agreements are still ‘the bread and butter’ of EC’s work, but she noted: “some buyer cartels do have a very direct effect on individuals, as well as on competition, when companies collude to fix the wages they pay; or when they use so-called “no-poach” agreements as an indirect way to keep wages down, restricting talent from moving where it serves the economy best.”[23]

The EC has long made clear that the goal of competition policy is not only to address rent-seeking behavior and financial detriment to the consumer, but also fostering innovation in the marketplace. Indeed, Commissioner Vestager was concerned that the abovementioned cartels are effectively “a promise not to innovate, or not to enter a new market[24] in the circumstances where the optimal result for the consumer may not simply be a cheaper price paid for the product, but rather that the product is of adequate, or even of better, quality. Although no express announcements were made, the remarks made by Commissioner Vestager followed a series of (as yet unspecified) dawn raids carried out by the EC since summer 2021 in different European countries, which is an indication that we may see an EC intervention involving no-poach agreements in the near future.

Nevertheless, some of the NCAs in Europe have already beaten the EC to the punch. We will set out the most notable examples below. As far as we can see, there have only very recently been cases (such as the Portuguese case mentioned below) in which no-poach agreements were scrutinized on a stand-alone basis. For the longest time, if at all, no-poach agreements were looked at in the context of wider anti-competitive conduct.

Croatia

In June 2015, the Croatian NCA [25] accepted commitments by an IT specialist company, Gemicro. It was considered an abuse of dominance captured by Article 102 TFEU that Gemicro only contracted with companies which would accept a clause preventing them from engaging competing service providers that hired former employees of Gemicro. This case is somewhat exceptional on the basis that the no-poach aspect came in indirectly through Gemicro’s refusal to service companies that would refuse to commit not to hire rival companies that employed former Gemicro employees. This seems to be one of only a few scenarios in which no-poach clauses has played a role in an abuse of dominance case under Article 102 TFEU.

France

In 2017, the French NCA [26] fined three PVC floor coverings manufacturers for violating Article 101 TFEU (and the equivalent French national antitrust law) by entering into an agreement in relation to their commercial policies, including prices. Among other things, the exchange of confidential information regarding salaries and bonuses of personnel also was covered by the agreement. In addition, a “gentleman’s agreement” not to poach each other’s employees was in place. The French NCA regarded those agreements to be an infringement “by object.”

Hungary

On December 18th, 2020, the Hungarian NCA adopted a decision[27] against the Association of Hungarian HR Consulting Agencies (“Association”) for restricting competition among its members for a period of 7 years. The Association had included certain provisions in its ethical code which implemented fixing minimum fees and other conditions in relation to the hiring and recruitment services provided by the Association’s members. Further, the Association’s code limited the ability of members to use the data and CVs of their employees working for another member when submitting tenders in the public procurement of recruitment services. Finally, the code contained a no-poaching clause pursuant to which members were prohibited from recruiting other members’ employees with the ultimate objective to “share the sector between members and prevent the free movement of employees on the market” which also was “disadvantageous for the recruited employees as well since they prevented them from finding better employment and higher wages.” The Hungarian NCA found these provisions to be in breach of Article 101(1) TFEU and fined the Association for the conduct.[28]

Netherlands

In a case initially investigated by the Dutch NCA, the Dutch Court of Appeal[29] confirmed on April 5th, 2010, that the no-poach agreement in question violated Dutch antitrust law (which is materially similar to the above recited Article 101 TFEU). The agreement, which was concluded between several hospitals, provided that when certain medical personnel ceased working for one hospital and became a self-employed agency worker, they would be banned from being engaged by a hospital for a period of 12 months.[30]

Portugal

On April 18th 2021, the Portuguese NCA issued a statement of objections – a preliminary written indication to a company or association under investigation that states the grounds for the potential antitrust infringement – addressed to the Portuguese Professional Football League (“LPFP”), Portugal’s professional association football division of the Portuguese soccer league system.[31] The LPFP issued a resolution, following which 31 sports clubs who participated in the season 2019/2020 of the First and Second League implemented a no-poach agreement, according to which a player could not be engaged by another club in the First or Second League in circumstances where a player unilaterally terminated a contract for COVID- 19 pandemic-related reasons. The Statement of Objection raised the concern that the agreement “is able to reduce the quality of football matches and thereby to harm consumers by reducing the competitive environment between clubs, preventing the hiring of players that could fill gaps in teams, and resulting in the loss of players in national competitions”. The Statement of Objections followed an interim measure that the Portuguese NCA had imposed on the LPFP in relation to the same issue almost a year earlier in May 2020 by which the LPFP was ordered to suspend the agreement.[32] In September 2021, the Portuguese NCA issued a detailed report[33] and a best practice guide[34] relating to anti-competitive practices in the labor market, with one of its goals being preventing the use of no-poach agreements. Further, the Portuguese NCA issued an opinion to the Portuguese Football Federation (“PFF”) in June 2020 (by which time the PFF had already withdrawn the resolution in question), in which it made it clear that the PFF would be at high risk of restricting competition by imposing maximum salary caps on Women’s League clubs. Similarly, the Portuguese NCA made it clear that a salary cap would be comparable to an input price-fixing agreement and therefore would be prohibited under both Portuguese and EU competition law.[35]

Spain

In a decision[36] dated March 31st, 2010, the Spanish NCA declared that eight transport freight forwarding agents had infringed Article 101(1) TFEU and the equivalent national antitrust law by entering into an agreement not to hire each other’s employees without prior consent. This agreement was part of an overall alignment of the market strategies and was deemed to be an infringement “by object.” One year later, on March 2nd, 2011, the Spanish National NCA fined eight cosmetic product manufacturers for having breached Article 101 TFEU and national antitrust law through, among other employment-related conduct, the implementation of a no-poach agreement. [37] The cartelists agreed that they would not, without prior consent, cold-call or hire each other’s sales staff, which was also considered to be an infringement “by object.”

Conclusion

While, as shown above, competition law in Europe has for some time dealt with certain employment issues (on both EU and national level), it is only recently that a marked uptick in enforcement can be observed (especially in relation to various forms of wage-fixing). The Portuguese case described above is perhaps the first European case which dealt solely with a form of a no-poach agreement. Nevertheless, Margrethe Vestager’s 2021 speech, and the increasing activity in this area, suggests that we may soon see competition cases targeting employment issues more widely, and no-poach agreements more specifically, on the EU level, with further enforcement on the national level to follow.

*Dr. Julia von Eitzen Peretz and Agnieszka Zalewska are Associates in London

Footnotes

[1] Commissioner for Competition is a member of the European Commission, the executive branch of the EU, responsible for competition policy and enforcement, including investigating competition law infringements and issuing decisions sanctioning anti-competitive conduct.
[2] Speech by EVP M. Vestager at the Italian Antitrust Association Annual Conference - "A new era of cartel enforcement" on 22 October 2021, https://ec.europa.eu/commission/commissioners/2019-2024/vestager/announcements/speech-evp-m-vestager-italian-antitrust-association-annual-conference-new-era-cartel-enforcement_en.
[3] Oxera https://www.oxera.com/insights/agenda/articles/how-do-no-poach-agreements-distort-competition/#_ftn2
[4] For example, see https://one.oecd.org/document/DAF/COMP/WD(2019)67/en/pdf.
[5] Ibid, note 2.
[6] Article 101(2) provides that “Any agreements or decisions prohibited pursuant to this Article shall be automatically void.”
[7] More similar, therefore, to the rule of reason analysis under the US Sherman Act.
[8] Article 102 also contains a non-exhaustive list of the types of abuse that will be caught, i.e. directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions, limiting production, markets or technical development to the prejudice of consumers, applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage, making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.
[9] The assessment of whether or not conduct may affect trade between the Member States is a standalone topic and falls outside the scope of this article.
[10] ECJ, Case C-22/98 – Jean Claude Becu [2001], ECLI:EU:C:1999:419, [1999], para. 26.
[11] ECJ, Case C-67/96 – Albany [1999].
[12] See for example ECJ, Case C-67/96 – Albany [1999], EU:C:1999:430, para. 59; C‑438/05 – International Transport Workers’ Federation and Finnish Seamen’s Union [2007], EU:C:2007:772, para. 49; C‑319/07P – 3F v Commission [2009], EU:C:2009:435, para. 50.
[13] Available at: https://ec.europa.eu/commission/presscorner/detail/en/ip_21_6620.
[14] See https://ec.europa.eu/commission/presscorner/detail/en/IP_16_3201
[15] Decision of the German NCA dated July 26th 2016, case number B12 - 23/15, case report available at: https://www.bundeskartellamt.de/SharedDocs/Entscheidung/DE/Fallberichte/Kartellverbot/2016/B12-23-15.pdf?__blob=publicationFile&v=3. 
[17] Although there appear to be no cases brought by the German NCA in relation to no-poach agreements and competition law to date, there was an interesting judgment by the German Federal Court of Justice (“FCJ”) dated April 30th, 2014, addressing a no-poach agreement between two companies from the perspective of commercial law rather than antitrust law. Two companies in the commercial vehicle sector had entered into a distribution agreement which contained a section pursuant to which the companies were prohibited from recruiting one another’s employees for the duration of the agreement and for the period of three years after its termination. Based on the agreement’s penalty section associated with the no-poach clause, which provided for compensation equivalent to two annual salaries of the employee in question, one company sued the other company for damages of EUR 380,000 after it had hired that employee in the third year after termination of the distribution agreement. While the first instance court dismissed the case, the court of appeal awarded the damages. The FCJ dismissed the case and held that the no poach agreement was within the scope of Section 75f of the German Commercial Code (“GCC”), which provides that an agreement between two companies not to hire a sales agent employed by the other company is not binding – it is however established that this provision covers such recruitment prohibitions more generally. The FCJ stated that no-poach agreements are not per-se covered by Section 75f GCC, in particular in cases where it is an ancillary provision with the objective of taking account of a special trust relationship between the companies or a certain need for protection of one of the companies. However, given that, in the case at hand, the employee was hired by the other company in the third year after termination of the agreement, the FCJ found that none of the above applied and no compensation had to be paid. The judgment can be found at: Urteil des I. Zivilsenats vom 30.4.2014 - I ZR 245/12 - (bundesgerichtshof.de).
[18] See https://kt.gov.lt/en/news/by-agreeing-not-to-pay-players-salaries-lithuanian-basketball-league-and-its-clubs-infringed-competition-law.
[19] See https://uokik.gov.pl/news.php?news_id=17405
[20] See https://uokik.gov.pl/news.php?news_id=17814.
[21] See the Independent Disciplinary Panel’s decision in: Premier Rugby Limited v Saracens Limited (SR/Adhocsport/201/2019). Accessible at: https://media-cdn.incrowdsports.com/fa097ce0-fc01-4b01-bbb0-e147ffa67de6.pdf.
[22] In this context, the Panel noted that in the case of the Football Disciplinary Commission’s decision dated 19 October 2017 (QPR v EFL) the argument that financial fair play regulations were anti-competitive “by object” was dismissed. The case was, however, different from the Saracens challenge as the financial fair play rules limited the amount that owners could invest in a club.
[23] Speech by EVP M. Vestager at the Italian Antitrust Association Annual Conference - "A new era of cartel enforcement" on 22 October 2021, https://ec.europa.eu/commission/commissioners/2019-2024/vestager/announcements/speech-evp-m-vestager-italian-antitrust-association-annual-conference-new-era-cartel-enforcement_en.
[24] Ibid.
[25] See press release of the Croatian NCA, available at: https://www.aztn.hr/en/gemicro-committments-accepted/.
[26] Decision of the French NCA, dated October 18th 2017, Case number 17-D-20, available at: https://www.autoritedelaconcurrence.fr/sites/default/files/commitments//17d20.pdf.
[27] See press release, available at: https://www.gvh.hu/en/press_room/press_releases/press-releases-2020/the-gvh-cracked-down-on-a-cartel-and-imposed-a-fine-of-huf-1-billion-on-hr-consultants.
[28] However, in this case, the members were jointly and severally liable for the Association’s liabilities so the fine had to be paid by the Association’s members.
[29] Court of Gerechtshof’s - Hertogenbosch HD 200,056,331, April 5th 2010.
[30] There were also wage-fixing provisions, in particular over-time caps, which the Court of Appeal also found to be in violation of Dutch competition law.
[31] See press release, available at: https://www.concorrencia.pt/en/articles/adc-issues-statements-objections-anticompetitive-agreement-labour-market-first-time.
[32] See press release, available at: https://www.concorrencia.pt/en/articles/covid-19-adc-imposes-interim-measure-portuguese-football-league-suspends-no-poach.
[33] English version available at: https://www.concorrencia.pt/sites/default/files/documentos/Issues%20Paper_Labor%20Market%20Agreements%20and%20Competition%20Policy%20-%20EN.pdf.
[34] English version available at: https://www.concorrencia.pt/sites/default/files/documentos/guias-promocao-da-concorrencia/Best%20Practices%20in%20Preventing%20Anticompetitive%20Agreements%20in%20Labor%20Markets.pdf.
[35] See also João Pateira Ferreira, “Impact of Covid-19 on the Sports Industry: A Competition Law update from Portugal”, dated July 15th 2020, available at: https://www.linklaters.com/en/insights/blogs/sportinglinks/2020/july/impact-of-covid-19-on-the-sports-industry-a-competition-law-update-from-portugal.
[36] Decision of the Spanish NCA, July 31st 2010, Resolución (EXPTE. S/0120/08, Transitarios), available at: https://www.cnmc.es/sites/default/files/104188_244.pdf.
[37] Decision of the Spanish NCA, Resolución (EXPTE. S/0086/08, Peluquería Profesional) dated March 2nd 2011, available at: https://www.cnmc.es/expedientes/s008608.

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