Employing Old Antitrust Theories in New Markets: A Look at Antitrust Enforcement in Labor Markets in the US, EU and Beyond
While antitrust enforcement has traditionally focused on price fixing and bid rigging in sales markets, antitrust enforcers around the world are increasingly adapting the antitrust rules to analogous conduct in labor markets. After signalling in 2016 that it intended to pursue these cases criminally, for example, the US Department of Justice Antitrust Division (DOJ) in the last year brought the first criminal enforcement actions targeting so called “no-poach” and wage-fixing agreements. Antitrust enforcers in Europe and around the globe are now developing their own approaches to similar theories of harm and ramping up their scrutiny of new enforcement areas. As a result, exposure for companies is firmly shifting into new functional areas that require specialized compliance measures.
The key theories of harm for labor markets
The enforcement focus has been on two forms of allegedly anticompetitive agreements in labor markets. No-poach claims relate to agreements between companies not to solicit or hire each other’s employees. Wage-fixing claims relate to agreements between companies coordinating wages or other forms of compensation to be paid to employees. Notably, these theories of harm have been applied even if the companies do not compete in downstream sales markets. These concerns may arise directly in allegations of naked agreements, as part of ancillary restraints in M&A transactions, or in connection with the exchange of sensitive compensation information (including via trade associations).
Some enforcers put forward that these restrictions are prohibited per se or by object similar to analogous price-fixing and market allocation conduct in sales markets. At the other end of the spectrum, some countries’ laws explicitly exclude collective bargaining in labor markets from the antitrust remit. Others have taken a more cautious approach to apply a rule of reason or effect-based analysis, especially in the franchise context. Critics posit that such conduct, in particular on no-poaching agreements, may have pro-competitive benefits by increasing output or realizing operational efficiencies.
The US takes the lead in ramping up enforcement
Since the DOJ’s civil enforcement a decade ago challenging no-poach agreements among prominent tech companies, US enforcers have been active in opening investigations and filing lawsuits. In 2016, the DOJ and FTC jointly released the Antitrust Guidance for Human Resource Professionals (HR Antitrust Guidelines). These Guidelines heralded the intention of the DOJ to not only treat wage-fixing and no-poaching conduct as per se unlawful but to pursue criminal enforcement. The Guidelines also highlighted that exchange of compensation and employment information could be used as evidence to give rise to an inference of an unlawful agreement.
Over four years later, the DOJ is showing it intends to follow through with its promise to apply greater scrutiny to labor market restrictions. The DOJ now has three new active criminal cases pending in the US in the healthcare markets:
- In December 2020, the DOJ brought its first criminal wage-fixing charges against a staffing company owner for allegedly conspiring with other staffing companies to fix lower rates to be paid to physical therapists and their assistants.
- Shortly thereafter, in January 2021, the DOJ filed criminal no-poach charges against Surgical Care Affiliates, Inc. for allegedly agreeing with competitors to refrain from “poaching” each other’s senior-level employees.
- A few months later, in March 2021, the DOJ brought criminal no-poach charges against VDA OC LLC, a contract staffing company for school nurses, for allegedly agreeing with another company to allocate nurse employees by refusing to hire or recruit each other’s nurses within the school district.
All of the defendants are challenging the DOJ’s authority to bring these types of criminal cases. Critics particularly highlight a lack of notice for companies, where they say no court to date has applied a per se prohibition to this type of conduct.
US courts are also pushing the boundaries in number of private suits filed by several state Attorneys General and class actions by employees alleging harm from no-poaching conduct. In Illinois, for example, a trial court ruled that plaintiffs plausibly alleged a “hub-and-spoke” conspiracy between a sandwich chain's parent franchisor and its franchisees to agree not to poach each other’s employees.
Courts also appear to split on the appropriate standard of review, applying rule of reason analysis in some jurisdictions and a per se standard in others. How this fractured private US enforcement landscape will resolve itself as these cases work through the courts of appeal is to be seen.
In Europe, there is awareness about the effects of the gig economy and competition law on the worker side of the labor market. First, there is a concern that competition law prevents self-employed workers from collectively bargaining their working conditions, especially platform workers. This has already led to legislative changes and additional guidance in some European countries that we have discussed in a previous blog post. It has also triggered the European Commission to present four options to change the scope of EU competition law. Second, the Commission is working towards a proposal for improving the working conditions of platform workers. This is to be read against a clear jurisprudential trend in Europe that platform workers are increasingly being classified as employees, with far-reaching implications for businesses.
Enforcement against employers is currently more a side show in Europe. But some National Competition Authorities (NCAs) have made clear statements against no-poach agreements. The President of the French Competition Authority (FCA) plans "to look more closely at collusive practices affecting the employment market, like no-poach agreements". And the President of the Portuguese competition authority (AdC) said that there “is a lot of positive scope for action” as regards no-poach agreements and that it will likely publish best practices.
Beyond statements, a number of NCAs have been investigating agreements involving the labor market:
- Cases have pointed at no-poach agreements in the framework of a wider cartel probe in the Netherlands, France, Spain twice in the Hairdressing and Freight Forwarding sectors, or in the context of an abuse of dominant position in Croatia or Denmark.
- More recently, several NCAs have opened investigations or sanctioned labor restrictions:
- Hungary: In January 2021, Hungary imposed a €2.8 million fine on a recruitment association for price-fixing and no-poach provisions.
- Portugal: In April 2021, the AdC sent a statement of objections to the Portuguese Professional Football League and 31 football teams for their use of no-poach agreements.
- Poland: In April 2021, Poland opened an investigation into potential collusion between basketball clubs to terminate contracts and withhold player salaries.
While the Commission has not yet pursued or sanctioned wage-fixing or no-poach agreements as standalone restrictions, there is no reason to believe that it could not do so. Similarly, while there seem to be a trend currently targeting at the sport industry, no sector shall feel safe as far as such restrictions are concerned.
All around the world
Looking at the broader picture, enforcement involving labor markets has received global attention and contributed to an ongoing discussion among antitrust enforcers. However, how enforcers are policing such conducts reflects several different approaches, for example:
- Canada: In November 2020, the Canada’s Competition Bureau (CCB) announced that, while it would review no-poach and wage-fixing agreements under civil antitrust provisions, it would not criminally investigate such practices.
- Mexico: The Federal Economic Competition Commission (COFECE) in Mexico has recently announced potential criminal charges connected to the draft of professional soccer players following a 2018 probe into possible collusion in the recruitment of soccer players.
- Hong Kong: And on the lighter end of enforcement, the Hong Kong Competition Commission published an Advisory Bulletin in 2018 on anticompetitive employment practices, including wage fixing, no-poach agreements, and exchanges of competitively sensitive information between employers on employee compensation.
Whether the US’s approach in pursuing criminal enforcement will be an outlier among global enforcers remains to be seen. This is especially true given the challenges the DOJ is facing within the US courts. Even without criminal prosecution, companies should expect strong coordination between regulators in pursuing civil or administrative charges particularly among multinational firms that have employees in several jurisdictions.
Moving forward, companies should recognize that they operate in an environment of increased scrutiny around compensation and hiring practices. HR professionals should raise awareness at management level about the risks and be proactive in self-policing and monitoring the behavior of their sales representatives and other company personnel. This is especially true when companies communicate with other firms who hire from common labor markets, including in the context of trade associations focused on employment standards. And this environment is not limited to the United States—multinational companies should keep in mind that other enforcers are also cognizant of these issues.