‘No-Poach’ Agreements – EU Catching up With the US on Anti-Competitive Recruitment Practices
On 19 October, Margrethe Vestager, Executive Vice-President and Commissioner for Competition of the European Commission delivered a speech addressing the EU’s current policy when addressing cartels, potential changes to the Commission’s leniency program and recent dawn-raid efforts. Most notably, Vestager spoke about so-called ‘no-poach agreements, whereby companies agree not to recruit each other’s workers and/or fix wages.
Vestager noted the evolution of cartels in recent years, with the emergence of buyer cartels, which are different in many ways from traditional price-fixing and market-sharing arrangements. ‘No-poach’ agreements of this sort will cover both agreements between companies or groups of companies not to hire each others’ staff at all, or not to offer them more money to move and so make the likelihood of their jumping ship much smaller. They can also negatively affect competition by preventing new companies from breaking into markets where success is dependent on being able to hire employees with the right skills.
By focusing on such agreements, the EU is following in the footsteps of the US, which has been looking at anti-competitive practices among companies in the hiring of employees for some years. As early as October 2016, the Antitrust Division of the US Department of Justice and the Federal Trade Commission issued joint guidance for HR professionals there to alert them to competition risks present in the recruitment process.
Anti-competitive practices in the hiring of employees were only treated as civil offenses in the US up to 2016, and the first criminal wage-fixing and ‘no-poaching cases were not brought until December/January 2020/21. Further criminal cases were brought in March and July this year for alleged breaches of US antitrust laws in conspiring to suppress competition for the services of employees and to fix the wages of employees.
In these more recent cases, therapist staffing companies agreed to lower the pay rates for therapists and therapist assistants, outpatient medical care centre operators agreed not to solicit each other’s senior-level employees and health care staffing companies agreed to allocate school nurses between themselves and to fix their wages. Although if proven these are extreme examples of anti-competitive practices by employers, our experience with competition regulators is that enforcement starts with extreme cases and “easy wins” to shake things up a little (losing your first cases on new legislation as the regulator does not get your message off to a good start) before addressing less overt infringements. None of these recent cartel cases involved the archetypal “smoke-filled room” where participants agreed on prices and joked about its being just as well that the regulators had not planted microphones in the room (which, in the famous Lysine animal feed additive cartel case in 1998, they had), but while that makes for good headlines and a Hollywood airing – see The Informant! In 2009, which at least gave one of the subsequently jailed executives involved the consolation of being played by Matt Damon — it is not a necessary part of the offense. Sharing information is sufficient to create a cartel.
Given the EU’s newly-stated interest in looking at anti-competitive employment practices between companies, it can now be expected to start taking a closer look at ‘no-poach agreements and enforcement action in the sector. Enforcement priorities of the major antitrust enforcement agencies tend to harmonise and it is therefore probably only a matter of time before other agencies also focus on those agreements. The UK’s Competition and Markets Authority may be no exception, Brexit notwithstanding, though it is to be expected that it will not be a first-mover on this and will watch to see how those principles unfold on the Continent before implementing any rules of its own.
The joint guidelines issued by the US authorities may also serve as guidance for companies in Europe. More specifically, they set out that:
agreements among employers not to recruit certain employees or not to compete on pay are illegal;
the sharing of information with specific competitors about terms and conditions of employment may result in a breach of competition law; and
it is possible to design the exchange of information in ways that comply with competition law – by, for example, having a neutral third party manage it or having enough sources to prevent competitors from linking particular data to an individual source (so nothing there would prevent a company contributing to or relying upon anonymised market data obtained through commercially-available salary surveys, etc.).
Essentially, the guidelines treat terms and conditions of employment as similar to pricing information. However, there is real difficulty with this approach because terms and conditions of employment are not information that purely “belongs” to the company, but also to the employee. How can an employee negotiate with a future employer if they do not refer to their current salary and benefits? What is the interviewing company supposed to do? Take a file note to prove, in the event of an investigation, that the salary information originated from a competitor’s employee seeking a job (as opposed to a competitor seeking to fix the purchasing price of labour)? Better to produce a contemporaneous record of why, if that is the case, its decision not to offer materially more than the current salary is a genuine market decision and so limit the scope for any regulator to argue it to be the product of some express or tacit agreement with the former employer not to lure its people away with material uplifts.
This is the approach that some companies take when they receive competitors’ pricing information from a customer. Others companies will simply delete the data to avoid having to explain the situation to regulators. However, here the information comes directly from a competitor’s employee. What about statements such as an announcement from company X that it is raising its entry salaries to match the new scale set by company Y? In a different context, this could be equivalent to manufacturer X announcing that it is lowering its prices to match the new scale set by manufacturer Y. The first questions a regulator would ask is where the “scale” came from and why company X is only matching company Y’s pricing, rather than going lower.
It is clear that there will be enormous teething problems as and when it comes to enforcement in this sector. These will have to be fought out against the backdrop of some potentially immense fines. Under EU competition law, companies can be fined up to 10% of their total worldwide turnover, though it must be hoped that this would be reserved for the most serious and deliberate cases only. The way fines would be calculated would likely depend on the nature of the anti-competitive practice, its geographic scope, its duration and any leniency/mitigation or settlement reductions. The European Commission also has very broad investigative powers that range from making requests for information from companies to conducting unannounced dawn-raids to collect evidence.