Antitrust Law and Labour Markets: Cartel Authorities take Aim at HR

published on 22 February 2023 | reading time approx. 3 minutes

Many companies have already recognised the necessity of antitrust compliance. In some cases, however, the companies are not fully aware of which divisions and em­ployees could be affected by antitrust law. Recently, human resources departments around the world have increasingly become the focus of cartel authorities. Procee­dings and statements by important cartel authorities such as the US Federal Trade Commission and the EU Commission make it clear that cartel authorities will invcrea­sing­ly pursue antitrust violations in the human resources sector in the future. This article describes the latest developments and shows how companies can avoid antitrust violations in labour markets.

• Prohibition of cartels and legal consequences »

• Competition in the labour market »

• Cartel authorities increasingly intervene »

• Examples of critical behaviour »

• Avoidance of cartel law violations and legal consequences »

• Conclusion »

Prohibition of cartels and legal consequences

The ban on cartels prohibits - in most countries of the world – anti-competitive agreements or coordination between companies. It does not matter whether the coordination is in writing, oral, binding or non-binding. Even a "gentlemen's agreement" is prohibited. Increasingly, cartel authorities even prosecute the exchange of competitively sensitive information (e.g. prices, margins, costs, strategies, innovations, etc.) between com­pe­ti­tors.

Violations of the ban on cartels can have serious consequences. In particular, there is the threat of lengthy cartel proceedings with fines of up to 10 per cent of the worldwide group turnover, claims for damages by affected customers and considerable loss of reputation. Contracts that violate antitrust law are invalid. In some countries, senior managers face personal fines (e.g. in Germany) or even criminal proceedings (e.g. UK, USA).

Competition in the labour market

Companies must therefore be careful when cooperating with competitors or even just exchanging information. Restrictions on competition may not only exist in the conventional sale or purchase of goods or services. Com­pa­nies also compete, for example, in the demand for employees (“war for talents”), which can be unlawfully restricted. It is important to understand that companies regularly compete with more and/or other com­pa­nies when hiring employees than, for example, when selling their products. Thus, companies from other industries can also be competitors on the labour market.

Cartel authorities increasingly intervene

In recent times, cartel authorities have increasingly initiated proceedings against companies for violations of antitrust law in the labour market.

The pioneer - as is often the case in antitrust law - is the US: there were already lawsuits and antitrust pro­cee­dings against Apple, Google and other IT companies several years ago because of agreements not to poach emp­lo­yees. In 2016, the US cartel authorities DOJ and FTC then published guidance on the topic of antitrust law and HR ("Antitrust Guidance for Human Resources Professionals"). In early 2023, it became known that the FTC was pursuing cases against several companies for including non-compete clauses in employee employment contracts.

The Swiss Competition Commission (WEKO) announced at the end of 2022 that it was investigating the labour market in the banking sector because banks in Switzerland were said to have regularly exchanged information on the salaries of different categories of their employees. This makes it clear that the cartel authorities are not only pursuing hard agreements such as no-poaching agreements in the labour market, but also an exchange of competitively sensitive information. The WEKO explicitly pointed out that the labour market was increasingly becoming the focus of the cartel authorities "around the globe".

The EU Competition Commissioner had already warned of antitrust violations in labour markets in 2021 and announced their prosecution by the EU Commission. Proceedings have also been initiated in many other coun­tries, including Poland, Hungary, Lithuania, Mexico and Brazil.

Examples of critical behaviour

The following practices on the labour market are critical under cartel law and should be avoided or examined in advance under cartel law.

No-poaching agreements

Particularly critical are agreements with other companies not to poach employees from each other and/or not to hire employees from the other company or to do so only after certain waiting periods. Exceptions may apply if such a prohibition is absolutely necessary for a legitimate reason (e.g. acquisition of a company).

Agreements on salaries

Agreements on salaries or salary components, including bonuses, commissions, etc., are also considered particularly serious violations.

Coordination and exchange of information

However, coordination and exchange of information on relevant competitive factors in personnel recruitment are also critical under cartel law. In addition to salaries and other factors relevant to remuneration, these may also include other relevant working conditions, such as company pension schemes, company car regulations, holiday regulations, company housing, special working conditions (4-day week, sabbaticals, special further training offers, etc.) and the like.

Exception: collective bargaining autonomy

There are exceptions to the ban on cartels in the area of collective bargaining autonomy.

Avoidance of cartel law violations and legal consequences

There are various occasions when the risk of a cartel law violation in the HR sector may be increased. Examples are industry and association meetings, (external) HR working groups or also the use of service providers in the HR area, for example if they provide benchmarking services or compile market statistics. There is also a par­ti­cu­lar risk when employees have good personal contacts in other companies.

Employees with connections to HR issues must therefore (also) be sensitized to antitrust law. They should be instructed and trained preventively on the antitrust risks in the HR area. In view of recent developments, it is also advisable to check whether there has been a critical exchange of information with competitors on HR issues or even coordination or collusion on HR markets in the past.

Conclusion

The prosecution of cartel law violations by the cartel authorities will not decrease in the coming years. It can be observed that the cartel authorities are increasingly focusing on new issues. In 2021, the EU Commission im­po­sed high fines for coordination on technical developments. The recent activities and statements of the cartel authorities make it clear that there will be more international antitrust proceedings affecting the HR sector in the coming years. Companies should therefore make their employees aware of and train them in antitrust law, regardless of the company size. In doing so, they should cover not only the classic areas such as purchasing and sales, but also other areas of competitive relevance, especially the HR department or the development department.