Employment Law Meets Antitrust: Competition 101 for HR Professionals

Competition authorities in Europe and the United Kingdom are increasingly focusing in on labor markets in their enforcement activities. This is part of a wider, global trend in enforcement. In the United States, the Federal Trade Commission moved to ban employee non-competes (see our April 2024 Advisory). Even though the law itself has not changed in Europe and the United Kingdom, competition authorities have increased their enforcement focus on employment practices. Moreover, the current UK government proposed introducing legislation to limit non-competes to three months, and we will see whether the new UK government will pick up this proposal after the upcoming election.

Employers and human resources (HR) professionals should therefore be aware of developments in the rapidly changing competition enforcement landscape.

What Are the Agencies Interested In?

The idea that collusion on labor can amount to anticompetitive conduct is not new, but historic enforcement cases are sparse. This is changing. New guidance from the European Commission and the UK Competition and Markets Authority (CMA) indicates the three most likely forms of conduct which will trigger their interest are:

1. No-poaching agreements: Where two or more firms agree not to approach or hire one another’s employees, either absolutely or without consent.

2. Wage-fixing agreements: Where two or more firms aim to fix employees’ pay or equivalent benefits.

3. Information sharing: Where competitors share commercially sensitive information relevant to employment, such as standard employment terms or wage levels, either directly or indirectly. This could also extend to benchmarking exercises where wage or other confidential information is exchanged.

Importantly, you don’t need a contract or formal agreement to be caught: For competition law purposes, an “agreement” does not need to be a written contract. It can be a verbal exchange, a “gentlemen’s agreement,” or just an understanding. The concept captures very soft understandings and that is a core area of potential exposure, particularly in industries where HR professionals from competing firms meet in special fora or trade bodies. With respect to information exchanges, simply receiving and giving information can be enough.

What Are the Key European Union and UK Enforcement Cases?

In January 2024, the CMA expanded the scope of its investigation of the UK fragrances sector to include “unlawful coordination … involving reciprocal arrangements relating to the hiring or recruitment of certain staff,” likely a form of no-poach agreement. Similarly, the CMA is also currently considering employment-related issues in parallel investigations into the sports and non-sports broadcasting sectors. Here, the CMA’s suspicions concern potential coordination regarding both direct employees and freelance employees from whom services are purchased, though precise details of the alleged breach have not been made public.

At the same time, the European Commission conducted dawn raids in November 2023 to expand the scope of their investigations into the online food delivery sector to include potentially (in their view) anticompetitive no-poaching agreements between competitors.

The following visual shows countries that have actively pursued such cases. This means that any company with a European footprint needs to have in place proper procedures to avoid creating antitrust risk.


Figure 1 - European competition cases relating to labor markets.

In parallel, the UK government released a policy paper indicating plans to limit non-compete clauses in employment contracts to a maximum term of three months. This will require a change in legislation, and, given the UK general election, one needs to see if the new government takes up this initiative. This may fall by the wayside, given other pressing demands on the new government’s schedule, but if implemented, such a change may well be the death knell of non-competes in the UK because it would rarely be worth the time and expense of going to court to enforce a restriction of only three months' duration.

The ongoing focus on non-competes and employment terms in the context of competition was reemphasized in a detailed report on the topic by the CMA’s Microeconomics Unit in January 2024, and the topic was flagged as an area of ongoing focus in the CMA’s 2023-2024 Annual Plan.

Transparency, Benchmarking, and Trade Associations

Anticompetitive collusion between competitors is not limited to actively agreeing to fix certain employment terms, such as wages or notice periods. A simple exchange of competitively sensitive information (e.g., sharing insufficiently aggregated salary data on a one-time basis) could breach competition law. At the same time, employers are also under increasing pressure to disclose employment data, such as salaries, in pursuit of pay transparency. Fulfilling all statutory duties, therefore, requires that employers walk a tightrope, fulfilling employment law disclosure requirements without breaching competition restrictions.

Past examples of competition authorities treating information exchanges as anticompetitive even if they are not part of a wider cartel include reciprocal (or unilateral) exchanges of information without further agreements or understanding as to conduct. Hence, there is a significant risk that competition authorities will apply this more actively in the employment sphere.

Moreover, information exchange via independent third parties, such as a trade association, does not necessarily shield an employer from antitrust risk if the information is not sufficiently historic or aggregated. For example, in the Polish basketball case listed above (see Figure 1), members of the Polish Basketball League agreed to each withhold pay from players on account of the season ending early during the COVID-19 pandemic. A system of information exchange between the teams via a third party, the league itself, enabled this coordination. Similarly, this could occur via wage benchmarking efforts through a trade association if data is insufficiently historic, aggregated, or genericized.

What Does This Mean for Busy HR Professionals?

Protecting against anticompetitive behavior, and subsequent enforcement actions, presents a complex challenge — all the more so for HR teams already acting in a highly regulated field. The risks will be even greater where a company is potentially dominant in its field and attracts more scrutiny from competition authorities. The first step in any compliance program is to conduct up-to-date training and education of staff on competition restrictions and use internal reporting tools to sensitize HR professionals to the potential of antitrust risk and familiarize them with the concepts of competition law. This should ideally be backed up by internal policies or guidance given by employers to relevant managers and HR professionals to demonstrate that the employer is on top of this area and is not encouraging collusion or unlawful information exchanges.

As an ongoing measure, particular care should be paid when conducting disclosure or transparency initiatives, where a degree of information release is required, and to industry initiatives, such as through trade associations or other third parties. HR professionals should proactively seek input from their internal or external lawyers from an early stage when being presented with or developing such initiatives.

© Arnold & Porter Kaye Scholer LLP 2024 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.