CMA joins the global pack and signals increased antitrust scrutiny of labour markets
11 min read
The UK antitrust authority, the CMA, has recently published a guide for employers on how to avoid breaching UK antitrust law in labour markets. This publication signals the UK's intent to ratchet up antitrust scrutiny of labour markets – a trend that is gathering momentum across the world, in particular in the United States. UK and global businesses will need to take note of this growing trend in labour antitrust enforcement.
The UK guide
On 9 February 2023, the UK's antitrust agency – the Competition & Markets Authority (CMA) – published "Employers advice on how to avoid anti-competitive behaviour". The new UK antitrust guide focusses on three areas:
- no-poaching agreements – when two or more businesses agree not to approach or hire each other's employees, or not to do so without the other employer's consent. These scenarios often occur when one employer "raids" another employer for new hires and the other employer complains. Or one employer advertises for new employees and the second employer in a geography complains.
- wage-fixing agreements – when two or more businesses reach an agreement to fix the level of employees' pay or other employee benefits. These include agreeing the same wage rates or setting maximum caps on pay. As a result, any discussions between two employers of wage trends can be fraught with risk.
- information sharing – sharing between two or more companies sensitive information about terms and conditions that a business offers to employees. This area is complex given the ubiquity of public information on salary levels and the utility of benchmarking best practices.
The CMA notes that anti-competitive agreements can negatively impact labour markets, for example, by:
- reducing employees' pay packets;
- reducing employee mobility and choice; and
- limiting a business's ability to expand.
The CMA warns that breach of UK competition law can lead to fines of up to 10% of annual worldwide turnover, as well as penalties on individuals, such as director disqualification orders for up to 15 years, personal fines and, in some cases, imprisonment for up to five years.
In the accompanying press release to the UK guide, Juliette Enser, the UK CMA Senior Director of Cartels, warns that "businesses have no excuse for not following the law and ignorance is no defence when it comes to colluding with competitors to rig the labour market in their favour".
The guide encourages businesses, legal advisers and recruiters to take the following steps:
- "understand how competition law applies to no-poaching and wage-fixing agreements
- don't agree with a competitor to fix wages
- don't agree with a competitor not to approach or hire each other's employees
- don't share sensitive information about your business or employees with a competitor
- provide recruitment staff with training on competition law and how it applies in the recruitment context
- ensure solid internal reporting processes are in place, and that staff are aware of these and how they can use them".
The UK Guide's Brevity Masks Complexity. The UK guide is frustratingly very short, consisting of essentially two pages, and as a result does not provide a great deal of explanation or practical guidance to business.
In particular, the UK CMA guide does not cover the following topics.
- What constitutes "sensitive information". Under UK competition law, companies should not exchange non-public competitively sensitive information. But this is a very complex topic. Generally, under UK law, this will include information on current and future pay as well as broader employment conditions. Salary surveys exist in many industries, and businesses should ensure that they check that any participation in such surveys complies with antitrust law. For example, businesses should ensure that they use only surveys run by independent third parties that provide aggregated information.
- No-poach agreements between non-competitors. Recent global enforcement activity relating to no-poach agreements has largely concerned cases in which employers were competitors both on the labour market and on the downstream market, e.g. competing sports clubs or competing manufacturers of motor vehicles.
- However, in the eyes of recent government enforcers, government antitrust agencies are taking the view that competition regarding labour forces also occurs between non-competitors, i.e. between firms in different lines of business and industries. For example, government antitrust enforcers may argue that Tech/IT staff or consultants could become the targets of no-poach agreements between companies in different sectors. The 2016 Antitrust Guidance for Human Resource Profession published by the US Department of Justice Antitrust Division and Federal Trade Commission declares under US law as interpreted by the US government that "[f]rom an antitrust perspective, firms that compete to hire or retain employees are competitors in the employment marketplace, regardless of whether the firms make the same products or compete to provide the same services". Whether labour markets across multiple industries constitute a valid antitrust product market is an open question under the case law and may have a dubious foundation. For more details on this topic, please see our alert here.
- Gardening leave. Gardening leave provisions are contained in agreements between a company and an employee, and are not horizontal agreements between employers which are the focus of the guide. The UK guide does not provide guidance on employer-employee agreements or restraints.
Increasing scrutiny of labour markets in the UK
The CMA's publication of the guide is a clear signal that it is following global trends to crack down on perceived anti-competitive abuses on labour markets. Whilst antitrust law has always applied in this area, it has not been a focus for antitrust authorities (especially outside the US).
In addition to publishing the short guide, the CMA has recently opened its first investigation into labour markets. In July 2022, the CMA opened an investigation into alleged wage-fixing of freelance technical staff, such as camera operators and sound engineers who work for several broadcasters of sports content.
The CMA has also identified1 specifically wage-fixing as a hardcore restriction (restricting competition by object) in its draft revised Horizontal Guidelines2 published in January 2023.
The global landscape: enhanced focus on labour markets around the world
The CMA's current interest reflects the global trend for increasing antitrust scrutiny that has been led by the US.
US: In the US, an enhanced focus on labour markets has been steadily gaining steam since the early 2010s but recently has become more acute (see our early 2022 alert summarising the movement here). In 2016, the two US antitrust enforcers, the Federal Trade Commission (FTC) and the Department of Justice Antitrust Division, issued a joint "Antitrust Guidance for Human Resource Professionals", which, like the UK guide, covers three main areas of competitive concern on labour markets (though in more detail): no-poach agreements, wage-fixing agreements, and information sharing.3 Since then, all three topics have continued in the spotlight:
- no-poaching agreements: Despite a jury trial loss earlier in the year, at the end of October, 2022, the US Antitrust Division secured its first criminal "no-poach" guilty plea.4
- wage-fixing agreements: In late 2020, the US Antitrust Division brought its first criminal wage-fixing case, charging several healthcare staffing companies with colluding to lower salary rates for physical therapists.5 Although the defendants were ultimately acquitted of wage-fixing, the US Antitrust Division has been vocal that it is "not backing down" from prosecuting criminal wage-fixing and no-poach agreement cases.
- information sharing: The 2016 joint US Antitrust Division and FTC Guidance for HR Professionals also warned that companies sharing employment information could be an antitrust violation if it results in anti-competitive effects, but pointed to the agencies' joint 1996 Statement of Antitrust Enforcement Policy in Health Care as an outline for how information sharing can be lawful in certain circumstances. As with the other labour hot-buttons, there is movement on this front, too: on 3 February 2023, the US Department of Justice Antitrust Division withdrew the 1996 guidance as "outdated," and "overly permissive [on the subject of] information sharing".6
In addition to the three areas above, US enforcers are now targeting a fourth central area of labour concern:
- employer-employee non-compete agreements: The US Antitrust Division and FTC's joint 2016 Guidance for HR Professionals explicitly noted that the "guidance does not address the legality of specific terms contained in contracts between an employer and an employee, included non-compete clauses". But since, then, the use of that precise contractual provision has fallen into the spotlight, culminating recently in the US Federal Trade Commission's announcement of a proposed rule to ban virtually all employer-employee non-compete agreements. The rule would be a significant break from historical precedent (non-compete agreements are traditionally allowed in the US, subject to state laws, provided they are reasonable in scope and duration). The proposed rule would not only bar companies from using non-compete provisions going forward, it would also require companies to actively rescind non-compete provisions in existing employment agreements. The ban would apply to all workers, including executives and personnel in possession of trade secrets, except for business owners with 25% or moreownership. (White & Case is closely tracking non-compete developments in the Non-Compete Resource Center.)
Canada: The movement has also spread across the continent – at the close of 2022, the Government of Canada amended its Competition Act, Canada's main antitrust law, to criminalise wage fixing and no-poach agreements. The new law went into effect in June 2022.7
EU: No-poaching and wage-fixing agreements are also a new hot topic for the European Commission. Commissioner Vestager has stated8 that "no-poach agreements as an indirect way to keep wages down, restricting talent from moving where it serves the economy best" will be in the spotlight of the European Commission's investigative work, and could be part of the scope of the European Commission's dawn raids. The Commissioner also emphasised that such agreements can be a threat to innovation competition – another area of interest for the EC in recent years – as "[t]here are markets where you can only compete if you have expensive machinery, or costly IP. And then there are those where the key to success is finding staff who have the right skills. So in these cases, a promise not to hire certain people can effectively be a promise not to innovate, or not to enter a new market." Director-General Olivier Guersent has stated9 that the European Commission is actively looking at how they can apply Article 101 TFEU (the rule against cartels and anti-competitive agreements) to no-poach agreements.
Various national competition authorities across Europe have actively enforced antitrust law in labour markets. Recent examples of fines that have been imposed are in the sports sector (basketball in Poland and football in Portugal), but the national authorities have investigated labour markets in a wide spectrum of other industries, such as consulting agencies (Hungary), supermarkets (Netherlands), installation and maintenance of elevators (Greece), floor coverings (France), and freight forwarding (Spain). There are several investigations concerning no-poach agreements in the pipeline in the EU. Benoît Coeuré, the head of the French competition authority, stated at a recent conference10 that the French authority is looking into a "couple" of no-poach cases. At the same conference, Margarida Matos Rosa from the Portuguese competition authority stated that the Portuguese authority had a pipeline of no-poach cases across a wide range of categories of worker – including cases arising from employee tip-offs and leniency applications.
Other jurisdictions: In the same vein, outside the EU, US and UK, competition authorities worldwide are actively pursuing no-poach or wage-fixing arrangements. There are reported investigations, for example, in Brazil, China, Colombia, Mexico and Peru.
Action for companies
Given the increasing global antitrust scrutiny of labour markets, boards and HR managers should be on high alert, particularly those with employees in multiple jurisdictions. Companies should immediately review whether current compliance policies and training programs are sufficiently robust and customised.
Companies increasingly are forced to update and re-examine antitrust compliance in their hiring, retention and compensation practices. Companies should adopt a holistic global approach to their refresh of compliance programmes and training. See here our previous alert on some suggested actions that companies can take to weather current antitrust scrutiny in labour markets.
1 Para. 6.9 (a) of the Draft Guidance on the application of the Chapter I prohibition in the Competition Act 1998 to horizontal agreements (CMA174) provides "agreements fixing wages" as an example of a hardcore restriction in the context of joint purchasing.
2 The CMA is currently running a public consultation on the draft revised horizontal guidance that is likely to enter into force later this year.
3 The Antitrust Guidance for Human Resources Professionals.
4 United States v. VDA OC, LLC, No. 2:21-cr-00098 (D. Nev. Oct. 27, 2022).
5 United States v. Jindal, No. 4:20-cr-00358 (E.D.Tx.).
6 The Department of Justice Antitrust Division's press release.
7 The Canadian government's press release.
8 Comments at the Italian Antitrust Association's Annual Conference in October 2021.
9 Comments at the Concurrences New Frontiers of Antitrust Conference in Paris on 21 June 2022.
10 Keystone conference on Antitrust, Regulation and the Political Economy, Brussels, 2 March 2023
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