Showing up for Work: Increased Scrutiny of Labor Markets by European Competition Authorities

Antitrust authorities' scrutiny of employer behavior in labor markets is not a venture into the unknown - in the United States, authorities have historically been very interested in prosecuting labor market antitrust violations. At the very least, antitrust enforcement in labor markets has become highly visible since the DOJ and FTC jointly stepped up prosecutions in 2016 following the release of antitrust guidance for human resources professionals. Not shying away from pulling out all the stops, the DOJ began bringing criminal charges in labor market collusion antitrust cases.

As a result, numerous competition authorities in EU member states have launched similar offensives in recent years:

In addition to enforcement efforts at the national level, there have been similar efforts at the EU level. Since November 2023, the EC has been conducting business inspections due to concerns about alleged labor market restrictions.

These enforcement efforts have now culminated in an EC policy briefing published on May 3, 2024. While this briefing is a non-binding statement setting out the general approach and priorities of the authority, the briefing paper is evidence that competition law authorities have the issue on their radar and that enforcement efforts will be stepped up.

The Job Description – Understanding the EC's Focus

Collusive practices in labor markets can take different forms. The EC’s policy briefing analyzes two types of agreements in detail: No-poach and wage-fixing agreements.

• No-poach agreements include agreements between employers not to hire or recruit each other's employees. They include no-hire agreements, in which employers agree not to actively or passively recruit each other's employees, and non-solicitation agreements, in which employers agree not to actively solicit another employer's employees with job offers.
• In wage-fixing agreements, employers agree to fix wages or other terms and conditions of employment at a certain level.

These agreements can be bilateral or multilateral, and they can be industry-wide or limited to a few parties. The examples chosen by the EC are the most obvious examples of anti-competitive collusion. Another form of coordination may involve the exchange of information about employees, which may also raise antitrust issues.

Irrespective of their specific form, the EC considers the above arrangements to be generally anti-competitive because they are likely to restrict labor mobility and may lead to inefficiencies that hamper innovation and business productivity. They could therefore have a negative impact both on the labor market and on overall economic growth. In addition, no-poach and wage-fixing agreements can create an environment in which firms have less incentive to offer competitive wages in order to attract talent from competitors, thereby depressing wage levels in general.

The authority is also conscious of the fact that incentives for such collusion have increased in recent years due to growing labor shortages. Labor markets are also demanding increasingly specialized workforces, which require higher investments by employers and lead to significant losses when employees leave a firm.

Employing a Hard Stance – What the EC thinks of Labor Market Collusion 

While it somewhat feels like a belated warning notice considering the international enforcement actions mentioned above, the EC has now formed a very clear and rigorous view on no-poach and wage-fixing agreements. To put it bluntly: they’re bad for workers and bad for competition. So bad in fact, that the EC considers these types of agreements to be forms of price fixing (Article 101(1)(a) TFEU) or market sharing (Article 101(1)(c) TFEU) and therefore anti-competitive "by object". This means they are restrictive of competition by their very nature, thereby relieving the authority of the need to prove the negative effects of such agreements in each individual case.

With this finding, the EC has also closed the door to far-reaching exemptions from the prohibition of Article 101(1) TFEU. Despite the potential benefits of such agreements (such as the protection of investments in employees), there is now little room for defending no-poach or wage-fixing agreements on the grounds of efficiency. An exemption under Article 101(3) TFEU would inter alia require tangible benefits for consumers, such as lower prices or better services, which the EC considers unlikely. In addition, the exemption does not apply if the objectives can be achieved by less restrictive means – and in the context of labor markets, employment contract clauses may be an equally effective way of pursuing the employer's legitimate objective of securing its workforce.

Under certain circumstances, however, the "ancillary restraints doctrine" may apply. In particular, no-poach agreements may be exempted on the grounds that they are (1) ancillary to a legitimate agreement between the parties, (2) indispensable to the main agreement, and (3) limited to the absolute minimum in terms of employees covered, duration, and territorial scope. It is expected that companies will have to walk a fine line in this respect, but there is room for justification – for example in certain joint venture constellations and in the context of vertical relationships.

With respect to enforcement, the EC recognizes that it expects most cases related to labor markets to be enforced by national competition authorities, as the geographic scope of labor markets will generally be national. However, the EC now clearly recognizes its role in enforcement and will continue to investigate anticompetitive conduct in labor markets.

Next steps

The policy briefing is a welcome clarification of the EC's priorities and a first indication of what is to come in terms of enforcement. However, it is also a call to arms and must be seen as a significant next step in the increasingly tough enforcement of (pan-)European competition law in employment markets.

For now, legal departments, HR managers and compliance officers should critically consider the following points:

• Now more than ever, competition law compliance must take into account labor market coordination issues. The EC’s brief makes one thing abundantly clear: This is not a trivial offense.
• Under the ancillary restraints doctrine, certain agreements may be exempt from anticompetitive rules. However, the permissibility of coordination under this doctrine must be critically assessed on a case-by-case basis.
• As an alternative to coordination between employers, similar results may be achieved by less restrictive means, in particular (non-compete) agreements between employers and employees. These agreements must then comply with national employment law.

We are happy to assist you in all matters of competition law enforcement in the labor markets and preventive compliance to steer you into safe waters!

Authored by Christian Ritz, Friedrich Preetz and Florian von Schreitter.