1. WHAT IS NO-POACH AGREEMENTS?
In the flow of economic and commercial life, it is a normal situation for companies operating in the same sector to compete with each other in order to strengthen their market shares and to get ahead of their competitors. As a requirement of this situation, rival companies seek and recruit candidates with similar qualifications while recruiting. However, just as competition law rules find an application area in the commercial sense, it is a necessity for the same rules to find an application area in the field of employment as well.
No-Poach agreements, on the other hand, are agreements between competing undertakings to limit or stabilize potential employment conditions, not to demand each other's employees, and to fix their salaries and employment conditions to a certain extent. However, such agreements violates competition rules. It is possible that the provisions restricting the ability of the contracting parties to take decisions on their own, especially regarding the wages and other labor claims, social rights or working conditions, are likely to be considered as violations of competition rules.
These agreements in question can be drawn up as separate agreements, or they can form the part of a different agreement. The Agreement can be established to restrict one or both of the parties. Rather than the written format, these agreements can also be established in the form of oral interviews as well. However, it is prudent not to forget that verbal negotiations or concerted actions may also cause the same violations in question.
On the one hand, competition between undertakings in a free market, ensures that end consumers receive quality goods and services at lower prices and are faced with more options and more innovations and on the other hand, this situation provides higher wages, better fringe and social benefits for employees. Therefore, end consumers and employees emerge as the beneficiaries from the competition between rival undertakings. Contrastingly, No-poach agreements are agreements that unreasonably restrict business life. With such agreements, the competitors put their reconciled will above the normal functioning of both the market and the employment market and cause serious damages to the competition and the market as a whole. In addition, making a wage/right fixing agreement regarding the salary or other rights of their employees at a certain wage/seniority level by the persons who play an active role in the recruitment processes of the undertakings or an agreement by these companies stating that each other's employees will not be recruited constitutes a severe violation of competition rules. The first steps were taken by the USA against these agreements, which can be considered as a violation of competition. Until 2016, these agreements were only seen as "tortious acts" and was only subject to pecuniary punishments, but today it is evaluated that;
- "It is illegal among employers to not hire certain employees and to fix wages accordingly,
- Sharing about employment conditions among competitors is against competition,
- Sharing about employment conditions among rival companies can
only be brought into compliance with competition law through
neutral third companies." The change in this attitude of the
USA with respect to no-poach agreements can be explained with the
modern purpose of competition law, which used to aim price-based
consumer welfare, but today it aims to protect the entire process
of meeting the product with the end user. The US Department of
Justice and the Federal Trade Commission issued a statement in 2016
clearly stating that such agreements are strictly prohibited and
that agreements to prevent employment and trade will have
consequences not only in legal terms but also in criminal terms as
well. The relevant statements asserts that;
"The DOJ (Department of Justice) will criminally investigate allegations that employers have agreed among themselves on employee compensation or not to solicit or hire each other's employees. And if that investigation uncovers a naked wage-fixing or no poaching agreement, the DOJ may, in the exercise of its prosecutorial discretion, bring criminal, felony charges against the culpable participants in the agreement, including both individuals and companies."
2. THE CORRELATION BETWEEN ANTI-TRUST LAW AND NO-POACH AGREEMENTS
Antitrust Law in the United States is a set of laws, most of which are federal laws, regulating the management and organization of commercial life. The rules in this regard are aimed to promote competition and prevent monopolization accordingly. Monopolistic behaviors that are aimed to be prevented within the scope of the concept of antitrust are situations such as; exclusive supply contracts (suppliers' inability to sell to different sellers), high pricing without reasonable cause, refusal to concord, and by linking the sale of two products to each other, forcing the buyer to purchase both even if the consumer does not want to buy the by-product. Such monopolistic behaviors are seem legal in the first glance but affect the commercial life deeply. The underlying regulations are the Sherman Act of 1890, the Clayton Act of 1914, and the Federal Trade Commission Act of 1914. To briefly explain these three arrangements:
- The Clayton Act of 1914: Prohibits price-fixing, monopolization, and collusion that unreasonably restricts business. While the Ministry of Justice is authorized to initiate legal action in order to prohibit behavior that violates the law, the parties damaged due to illegal actions are given the right to file a claim for compensation up to three times the cost caused by the damage.
- Sherman Act of 1890: An antitrust law in the United States that regulates competition between enterprises, passed in 1890 by the Congress chaired by Benjamin Harrison. It is named after Ohio Senator John Sherman, who was the first sponsor of the bill. The Sherman Act only declares monopolies illegal and the Clayton Act defines certain business practices that are conducive to the formation of monopolies or that result from them as illegal. The Sherman Act generally prohibits anti-competitive deals and unilateral behavior that monopolizes or attempts to monopolize the relevant markets. Just as in the Clayton Law, while the Ministry of Justice is authorized to initiate legal action to prohibit behavior that violates the Law, parties who have been harmed due to unlawful behavior are given the right to file a claim for damages up to three times the cost of the damage incurred.
- Federal Trade Commission Act of 1914: Prohibits monopolization, unfair competition, unfair or deceptive acts and practices.
Within the framework of these laws, legal and criminal sanctions are applied to businesses that act to prevent competition. However, only the US Department of Justice has the authority to impose criminal sanctions. In this context, there is debate about the extent to which antitrust laws should interfere with a business's freedom to do business or protect smaller businesses, communities and consumers. Although some economists and experts think that the aforementioned laws protect the employees and the end user and are necessary for the continuity of commercial life, the existence of those who think that the aforementioned laws actually prevent competition and prevent businesses from doing some practices that are beneficial to the society is noteworthy. The Sherman Act, the Federal Trade Commission Act, and the Clayton Antitrust Act protects end users and competitor firms from market manipulation resulting from corporate greed sourced from the large corporations. Through both civil and criminal enforcement, antitrust laws seek to end fraud, fraudulent pricing and monopolization and anti-competitive mergers and acquisitions.
Agreements between rival companies not to hire each other's employees (not to entice employees) or to non-compete (wage fixation) regarding salaries can be considered as a violation of competition rules. When analyzing agreements under competition laws, the term "competitor" includes any firm with which the firm competes to hire the same employees, regardless of whether they are in the same line of business. The broad interpretation of the definition of "competitor", results with antitrust liability issue for the companies' that conduct certain agreements, even if they are operating in different business lines.
3. OVERVIEW OF DEVELOPMENTS IN THE US AND THE EU
A. Developments In The US
The first step in preventing no-poach agreements is the Sherman Act, which was passed by the US National Congress in 1890. Section 1 of the Sherman Act "prohibits any collusion or agreement between several states to restrict trade or commerce". In 2010, the U.S. Department of Justice filed its first major lawsuit over no-poach agreements against several Silicon Valley companies, including Lucasfilm, Pixar, Google, Apple, Adobe, and Intel. As a result of this lawsuit, the companies' agreements on not hiring each other's employees and fixing their salaries cost the companies exactly $400 million. Thereupon, the US Department of Justice issued a statement asserting that it would expand the investigations and, if necessary, expose companies to criminal investigations. Before 2016, as stated above, no-poach agreements and violations resulting from agreements had only legal consequences. Nonetheless, recognizing the negative impact on worker circulation and employment and the violation of competition law, the US Department of Justice announced its first criminal investigations into no-poach and wage-fixing agreements between rival employers in 2016.
In line with these acts, In June 2016, the U.S. Department of Justice issued a guide stating that bare wage-fixing or no-poach agreements between employers, whether made directly between rival firms or through a third-party intermediary, are illegal under U.S. Antitrust laws. In the aforementioned guide, the Ministry announced and warned non-compliant companies' that they will initiate criminal sanctions in the future, that the accusations will be initiated without the need for any investigation, and that they should be especially careful regarding the competition risks that exist in the recruitment processes of human resources. Later, in November 2016, more radical steps were started to be taken in the USA with respect to no-poach agreements. While the US Department of Justice made accusations on a corporate basis until 2016, the DOJ has now started to file criminal complaints not only against companies but also against individuals. In December 2020, the Department accused Neeraj Jindal, the former owner of Integrity Home Theraphy, a physical therapy company, of price-fixing and conducting no-poaching agreements under Section 1 of the Sherman Act. As a result of its investigations, the Ministry claimed that his company reduced the wage rate of its physiotherapists and fixed prices and made agreements with rival companies. A month later, the Ministry of Justice discovered that Surgical Care Affiliates LLC and the companies with which it signed the agreement (the names of the other companies were not disclosed) came together in secret meetings and the DOJ, further discovered that they had made an agreement not to hire each other's senior employees and filed charges of conspiracy against the company and its partners.
In accordance with these developments, it would not be wrong to assume that criminal sanctions against companies will continue to be implemented in the USA. So much so that DaVita Inc., which was found to have made no-poach agreements, and its former CEO, Kent Thiery, have been charged in connection with Surgical Care Affiliates' conspiracy charges. In addition, an executive decision on Encouraging Competition in the American Economy was published and it was stated that the purpose of the said executive was to prevent monopolization and anti-competitive activities.
B. Developments In The EU
On October 12, 2021, the European Commission announced that it carried out surprise inspections on some companies operating in the play dough industry due to suspicions of monopolization. Ten days later, on October 22, 2021, Margrethe Vestager, head of European Commission of Antitrust Enforcement, publicly declared that this was just the beginning of a series of raids planned for the future. Just three days after this announcement, animal health company Zoetis in Belgium faced monopolization charges.
The first step taken by the European Commission on monopolization is the surprise inspection it carried out on a German clothing company in June 2021. Following this step taken by the Commission, other national competition authorities in France, Greece, Hungary, Norway, Poland, Portugal, Romania and Slovenia, who want to focus more on this issue, announced that they will conduct similar inspections in various sectors in the summer of 2021. Despite their announcements, no steps has been taken in this regard yet.
Following these steps, Margrethe Vestager, the head of the European Commission responsible for antitrust practices, said in a speech on 22 October 2021 that the investigations initiated were not only looking for traditional monopolization behaviors (price fixing or market sharing... etc.), but also were looking for more complex monopolization violations (such as technical agreements; No-poach agreements, wage fixing and etc.). However, despite these developments, there are currently no lawsuits before the EU competition authority. As we understand from the statements of Margrethe Vestager and the EU's attitude, the EU will probably focus more on no-poach agreements that limit competition and trade in the near future.
4. NO-POACH AGREEMENTS IN TURKISH COMPETITION LAW
In Turkey, the Competition Authority considers the agreements between rival companies not to employ each other's employees and to determine wages and to share salary information accordingly as contrary to competition and competition law. Pursuant to the decisions of the Competition Authority, agreements to determine the salaries of the employees qualify as agreements to determine purchase prices, and such agreements aim to prevent competition. Regardless, considering the relationship between Turkish Law and EU law, there is no definite and clear line like the US practices, and agreements not to employ employees within the scope of side limitation in merger and acquisition transactions are not considered unlawful.
With the decision of the Competition Authority dated 07.02.2019 and numbered 19-06/64-27,it has decided that the franchise agreements signed by Bfit Sağlık ve Spor Yatirim Tic. A.Ş are in violation of the Block Exemption Communiqué on Vertical Agreements numbered 2002/2. In the relevant decision, the Competition Authority states that;
"The basis of the claims that are the subject of the application are as follows; In Franchise Agreements signed between BFİT and franchisees; The non-compete obligations to the franchisee after the execution of contract, which is wide-ranging throughout Turkey, and the non-compete obligation imposed for the contract period or after, including the employees of the franchisee, and again, the provisions regarding employee inducing in the contracts create a competition restriction in the labor market." Even though the aforementioned decision is not a regulation, it is a significant step in Turkish Competition Law since it stipulates that the relevant contract clauses must be altered if the relevant provisions are not in accordance with competition and competition law.
In this context, the Competition Authority evaluated the obligation of non-compete to franchisees and their personnel during and after the contract period, and to imposition of a non-compete obligation on the personnel employed/worked by another franchisee in any of the competing companies. It has been concluded that the aforementioned articles of the relevant contract have an indirect, but not direct, harmful impact on worker circulation and employment, and thus fall inside the scope of Article 4 of Law No. 4054. Such that, in Article 4 of the Law No. 4054, titled " Agreements, Concerted Practices and Decisions Limiting Competition", Agreements and concerted practices between undertakings, and decisions and practices of associations of undertakings which have as their object or effect or likely effect the prevention, distortion or restriction of competition directly or indirectly in a particular market for goods or services are illegal and prohibited. As a sanction for this violation, an administrative fine can be imposed on turnover or compensation up to three times the damage incurred may be ordered in favor of the person who suffered the loss due to the violation in the first place.
In the agreement between the private schools that are members of TÖBB, the sharing of teacher salaries, and the agreement of the parties was agreed and conforming to another provision, "Institutions cannot make a direct transfer offer to a teacher or employee of another private school," according to the Competition Authority's decision dated 03.03.2011 and numbered 11-12/226-76. The Authority came to the conclusion that the clause in question "violates competition law." In conclusion, the decision states that;
"The discussion and sharing of information regarding price policies by the officials of private schools operating in the relevant market at the meetings held within the Association of Private Schools of Turkey and Ankara Private Schools Association can be considered as a violation within the framework of Article 4 of the Law No. 4054, In addition, some of the provisions of the "Private Schools Principles" adopted by the Association of Turkey, under the "Working Environment, Employees, Teacher Recruitment" and "Student Recruitment" sections, can be considered as an enterprise union decision that distorts competition within the scope of Article 4 of the Law No. 4054.
The above-mentioned decisions of the Competition Authority have shown us that the agreements made by companies in order to retain their current employees or to provide new employment to their companies may also be contrary to competition law. Competition law in our country has started to develop and enter our lives more and more in the last 25 years. Considering that global competition law developments came to the fore in terms of Turkish competition law only after a while and progress has been made, and the Turkish competition authority has adopted practices parallel to the current dynamics of the TR market, it would not be wrong to say that the US school has gradually started to be adopted in terms of No-Poach agreements.
It is fair to conclude that, since the beginning of the 2000s, with the digitalization and globalization of the world, the state-based order has withered and a company-based order has emerged resultantly. At this point, competition law tries to protect employees, low-budget companies, competition, the usual flow of commercial life, and most importantly, the end consumer. No-poach agreements and wage fixing agreements emerge as a global problem that deeply affects both employees, end consumers and commercial life. The developments against this problem, which started under the leadership of the USA, gradually began to resonate in Continental Europe, and the struggle in this regard became more of a global one. The fact that these tendencies are now being observed in our jurisdiction and that precedent decisions have been made is crucial in terms of safeguarding the rights of both end consumers and employees.
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