Antitrust and labour markets – a new focus of EU competition authorities?

Following global trends, notably in the United States, the European Commission (“EC”) is taking a closer look at potential antitrust infringements in labour markets. In November 2023 the EC carried out inspections at the premises of companies active in the online ordering and delivery of food, groceries and other consumer goods. Among other things, the investigation focuses on no-poach agreements (press release). Earlier in May 2024, the EC published a policy brief offering guidance for dealing with agreements on the labour market with a focus on wage-fixing and no-poach agreements. The EC scrutinizing these markets is also linked to labour markets in many EU Member States being moderately to highly concentrated (according to an OECD-led economic study, Link). The EC sees a risk that wage-fixing and no-poach agreements could reinforce the employers' market power and cause harm to employees, while softening downstream competition and ultimately leading to higher prices and lower quality.

What are wage-fixing and no-poach agreements?

In wage-fixing agreements, employers agree to fix wages or other types of compensation or benefits.

In no-poach agreements, employers agree not to “steal” employees from each other. This can be limited to a ban on actively approaching another employer’s employees with job offers (“non-solicitation agreements”) or also include a ban on passively hiring such employees (“no-hire agreements”).

From the EC’s perspective, it makes no difference regarding the antitrust assessment whether these agreements are sector-wide or limited to a few parties, how many parties are involved and how many are bound by the agreement. These practices are assessed on a general basis and typically considered to be prohibited (see below for more details).

Importantly, an antitrust infringement does not require companies to be competitors in any downstream product market. It suffices if they compete upstream for talent.

The EC’s assessment of such agreements in a nutshell

The EC`s horizontal guidelines (OJ C 259, 1, 21.7.2023, para 279) as well as its guidelines on the application of Union competition law to collective agreements regarding the working conditions of solo self-employed persons (OJ C 374, 2, 30.9.2022, para 17) have both reasoned that wage-fixing and no-poach agreements generally qualify as restrictions by object under the cartel prohibition. That is a form of restriction that reveals a sufficient degree of harm to competition, so that there is no need to examine effects on competition.

In its latest policy brief, the EC reiterates its view and adds that wage-fixing and no-poach agreements are unlikely to qualify as ancillary restraints or could be exempt in individual cases.

EC considers wage-fixing and no-poach agreements to generally qualify as restriction by object

The EC considers wage-fixing agreements to constitute a by object restriction and furthermore all forms of no-poach agreements likely to be restrictions of competition by object. This classification leads to the consequence that a full analysis by the competition authorities on the effect on competition is not necessary, which reduces the investigative efforts significantly. In light of this, European courts have regularly stipulated that the concept of restriction by object must be interpreted narrowly, applying it only to conduct that shows a sufficient degree of harm to competition. Moreover, in recent years, the ECJ has challenged the premature qualification of conduct being a restriction by object (f.e. in its Super Bock Bebidas judgment (C-211/22), see Noerr insight, and in its Budapest Bank Nyrt judgment (C-228/18)). 

Therefore, it remains to be seen whether the EC’s classification of wage-fixing and no-poach agreements as restrictions by object will ultimately hold up. The EC reasons are essentially:

First, analysing the agreements’ content, the EC finds that wage-fixing is a form akin to the explicitly prohibited purchase price fixing (Art. 101 (1) lit. a TFEU) whereas a no-poach agreement is a form of explicitly prohibited supply-source sharing (Art. 101 (1) lit. c TFEU).

Second, according to the EC, it is difficult to construe a legitimate objective of such agreements as they seemingly are most obvious restrictions of competition. Even if a legitimate interest existed, this alone would not exclude its qualification as a restriction by object; less restrictive means of achieving the same objective may often be available. Non-compete clauses with employees should, however, fall outside the scope of the cartel prohibition in the labour market context as theses may not qualify as agreements between ‘undertakings’.

Third, the legal and economic context needs to be assessed, however only to the limited extent of whether a wage-fixing or no-poach agreement reveals a sufficient degree of harm to competition. In particular, the EC contemplates labour as a fundamental factor of production and the ability to attract talent as a key competitive parameter. Sufficiently related and proven pro-competitive effects may be taken into account, but according to the EC are generally unlikely to be sufficiently significant to change qualification as restriction by object.

Exemption as ancillary restraint unlikely for such agreements

Although wage-fixing or no-poach agreements may be allowed as ancillary restraints, the consistently strict interpretation of the conditions set by the European courts must be considered. Parties must show that the agreement is (i) directly related to and (ii) objectively necessary for the implementation of (iii) a main, non-restrictive agreement and is (iv) the least restrictive measure able to make implementation possible. In particular, an agreement is only objectively necessary when undertakings in a similar situation would not have participated in the main, non-restrictive agreement without the restraints and the operation would be impossible to carry out without the restraint. The agreement must be limited in scope to the employees directly involved and only remain in place for a justified duration with an adequately limited territorial scope. The EC considers that often less restrictive measures will be available to achieve the same effect, such as confidentiality agreements with employees and non-compete clauses.

Individual exemption due to pro-competitive effects unlikely for such agreements

As a matter of fact, the EC sees it as unlikely that wage-fixing agreements could be justified on the basis of pro-competitive effects. The same applies to no-poach agreements, although the EC itself mentions an example, where such agreements may in principle have pro-competitive effects: the so called “investment hold-up”. Companies may have more of an incentives to invest in their employees’ training when a no-poach agreement is in place because the agreement ensures that competitors cannot free-ride on these investment. However, even for this scenario the EC contemplates pro-competitive effects at best as uncertain and emphasises that such effects would generally be achievable through less restrictive methods.

Outlook and practical implications

The competition authorities have been monitoring labour markets in the past (see NOERR insights 2018). With view to the current employee-driven labour markets and shortage of skilled employees, the attention of competition authorities on these markets will likely increase even further over the next years.

Companies are well advised to also include their human resource departments in their regular antitrust and dawn raid trainings. Further, companies should check if they have safeguards in place ensuring that they scrutinize agreements with other companies that compete with them for talent also from an antitrust perspective prior to the implementation of such agreements.