With the on-site inspections and investigations conducted by the Competition Board (“Board”) in recent years, against innovation-oriented technology companies, pharmaceutical companies, and companies operating in the information technology sector due to competition violations in labor markets, a need has arisen to provide clarity regarding the application of the Law on the Protection of Competition (“Law”) to labor markets and how anti-competitive agreements that restrict workforce mobility, as well as employees' wages and other working conditions, should be evaluated. Currently, there is an ongoing extensive investigation in the pharmaceutical sector, while investigations involving numerous software and technology firms, both large and small, have resulted in findings of violations for many of them.
In light of developments concerning labor markets in the application of competition law, the Competition Authority (“Authority”) published the Draft Guidelines on Competition Violations in Labor Markets (“Draft Guidelines”) for public consultation on September 16, 2024.
The Draft Guidelines emphasize that the workforce is an indispensable component of the operations of undertakings and, therefore, must be evaluated within the framework of competition law. It also emphasizes that due to the fundamental structural feature of labor markets, where a limited number of employers operating against a large number of employees, an imbalance of bargaining power arises to the detriment of the employees.
In this context, it is highlighted that employers may engage in anti-competitive behaviors, which could lead to the inefficient allocation of labor in the market, hinder the emergence of innovative ideas and technological advancement, restrict workforce mobility, reduce strategic uncertainty among undertakings with similar costs, and potentially result in adverse effects for consumers, such as a decrease in product diversity and quality, leading to the introduction of lower-quality but higher-priced products into the market.
The key points highlighted in the Draft Guidelines in terms of general principles and implementation guidelines can be summarized as follows:
- Implementation of Article 4 of the Law
In the Draft Guidelines, agreements or concerted practices entered into between employers that have the purpose or effect of fixing the wages and other working conditions of employees, agreements or concerted practices that have the purpose or effect of preventing employers from employing each other's current or former employees, and such decisions and practices of associations of undertakings are considered as violations of Article 4 of the Law.
In the Draft Guidelines, it is clarified that in the assessment of employers' behaviors that result in the prevention, distortion, or restriction of competition in labor markets, undertakings operating in different sectors will also be considered competitors in the labor market if they have a similar demand structure in terms of the workforce.
- Wage-Fixing Agreements
In the Draft Guidelines, wage-fixing agreements are defined as agreements in which undertakings jointly determine the working conditions of their employees, such as wages, wage increase rates, working hours, fringe benefits, compensation, physical working conditions, leave rights, and non-compete obligations. The wages and other working conditions provided by the undertakings in return for the labor performed by the employees under an employment contract are considered as the cost and/or purchase terms that constitutes the price within the scope of Article 4 of the Law, and in this respect, it is stated that the agreements aimed at determining the wages and other working conditions constitute a violation of competition considering their nature in accordance with the same provision of the Law.
The Board essentially evaluates such agreements, which can be classified as fixing purchase prices, within the same framework as traditional price-fixing agreements that occur on the output side of the market. In this sense, wage-fixing agreements that constitute a violation by their purpose are considered as cartels.
The Draft Guidelines also address the possibility that a third party may be considered a party to the violation, depending on the specific circumstances of the case, if they mediate or facilitate the conclusion of the agreement.
- No-Poaching Agreements
With respect to no-poaching agreements, which are defined in the Draft Guidelines as agreements, directly or indirectly, whereby an undertaking does not offer employment to or hire the employees of another undertaking, it is stated that not only agreements not to offer employment or not to hire each other's employees, but also making the hiring subject to the approval of the other party or making the hiring subject to the approval of the employee's current employer indicate the existence of an employee no-poaching agreement.
It is stated that, such agreements may be made for active employees of undertakings as well as for former employees.
The Board considers no-poaching agreements in the same context as provider/customer sharing agreements and considers no-poaching agreements that constitute a violation of competition in terms of the purpose, as cartels.
The Draft Guidelines also address the possibility that a third party may be considered a party to the violation if it mediates or facilitates the conclusion of such agreement, depending on the characteristics of the case.
The explanations provided in the Draft Guidelines regarding no-poaching agreements remain limited to general principles and do not delve into more specific concerns. In practice, it is evident that no-poaching obligations are often imposed unilaterally, with the weaker party, typically lacking bargaining power due to imbalances between the parties, having no real opportunity to negotiate such provisions and being compelled to accept them. In such situations, it remains unclear whether a true concurrence of wills can be said to exist and whether these clauses should be considered as general transaction conditions. Therefore, there is a clear need for further clarification on these issues within the Draft Guidelines.
- Information Exchange
According to the Draft Guidelines, for undertakings competing in the labor market, information regarding the working conditions of employees, such as wages, wage increase rates, working hours, fringe benefits, compensation, physical working conditions, leave entitlements, etc. will be considered as competition-sensitive information and the exchange of such information is evaluated as potentially having a restrictive purpose or effect on competition. Any exchange of information for the purpose of restricting competition in the labor market shall be deemed to restrict competition regardless of its effect.
Indirect information sharing conducted through associations where undertakings come together, or via independent market research organizations or private employment agencies, is also evaluated within the same framework as direct exchanges between undertakings. It would be appropriate to establish clearer principles and introduce rules regarding the acquisition of information through market research organizations.
Where undertakings exchange competition-sensitive information with each other in order to maintain a no poaching agreement or a wage-fixing agreement, the exchange of information may be considered as part of the relevant agreement.
For independent organizations that report on workforce-related data, especially regarding employee wages and working conditions, the sharing of non-aggregated, current, and/or forward-looking data, which allows for the identification of the data source or individual content and is not publicly available, is assessed as likely to produce anti-competitive effects.
- Ancillary Restrictions
The Draft Guidelines define as an ancillary restriction those restrictions imposed on the parties of an agreement that do not have the purpose or effect of preventing, distorting or limiting competition, and which, although not constituting the substance of the agreement, are necessary for the realization of the objectives sought to be achieved by the agreement and are directly related to these objectives.
The Draft Guidelines state that, as in mergers and acquisitions, no-poaching agreements provisions that demonstrate legitimate co-operation between the parties and fall within the scope of the doctrine of ancillary restrictions will be examined in terms of the criteria of "direct relevance" and "necessity".
- Direct Relevance
The condition of being directly related means that the restriction is inseparable from the original agreement and is subject to the application of this agreement. In order to fulfil this condition, firstly, it must be clearly demonstrated which main agreement the restriction is related to. Restrictions imposed between undertakings without establishing a link with a specific main agreement will not fulfil the direct relevance condition due to the uncertainty they carry. If the restriction fulfils the other conditions, it may be considered directly related even if it was not introduced at the same time with the original agreement
- Necessity
The condition of necessity, refers to the necessity of the existence of a limitation in order to implement or maintain the original agreement between the parties. The necessity condition will be analyzed according to objective circumstances, independent of the subjective assessments of the parties. Accordingly, considering the nature of the original agreement and the characteristics of the market, it may be said that the restriction is necessary if undertakings in a similar situation would not be party to the original agreement without the restriction in question. Situations such as the difficulty of implementing the original agreement without the restriction or the fact that the agreement would become less profitable would not render the relevant restriction necessary.
- Proportionality
In order for the restriction to be deemed proportionate, the objective sought to be achieved by the restriction in question must not be capable of being achieved by another instrument that restricts competition less and the scope of the restriction must be limited to the purpose, geographical scope, duration and parties of the original agreement. According to the Draft Guidelines, the matters to be taken into consideration by the Board in the proportionality assessment are as follows:
- Whether the period for which the limitation applies is expressly stated, whether it exceeds the duration of the original agreement or whether it is beyond a period that would be sufficient for the purpose to be achieved by the limitation,
- It is not clear whether the limitation covers employees other than those critical to the main agreement, or which employees the limitation is directed at,
- Whether the limitation extends beyond the geographical area to which the original agreement applies,
- Whether the limitation is imposed on all or more of the parties to the original agreement where it is sufficient to impose the limitation on only one or a smaller number of the parties to the original agreement.
As a result of the assessment to be made in light of these issues, the Board will determine whether the relevant restriction fulfils the proportionality condition.
In the Draft Guidelines, it is stated that restrictions that are found to be ancillary restrictions will not be considered within the scope of Article 4 of the Law, while restrictions that are found not to be ancillary restrictions will be considered within the scope of the Law.
Within the scope of the inspections and investigations conducted in sectors closely scrutinized regarding labor markets, the Board's approach that a restriction must first be concluded in writing and its limits must be clearly defined in order to be accepted as an ancillary restriction was subject to intense criticism due to the absence of a legal rule stipulating that an ancillary restriction must be in writing. In the Draft Guidelines, it is stated that the burden of proof regarding the existence of the criteria subject to the ancillary limitation assessments is on the party, and that the introduction of the limitation in writing will increase the certainty regarding the conditions foreseen above. The fact that this issue is included as a recommendation in the Draft Guidelines shows that the Board has taken into consideration the criticisms regarding the requirement that a restriction must first be concluded in writing.
Another significant issue that must be addressed regarding non-compete clauses is the necessity to consider the principle of proportionality from a different perspective in service relationships where know-how and trade secrets are extensively shared. In such relationships, it is essential to establish a careful balance between the interests of enterprises in protecting their trade secrets and the personal and professional interests of employees. In these cases, while balancing the interests of the parties, the need to preserve the innovative structure and competitive strength of enterprises must be taken into account, and employees' right to continue their professional lives freely must also be fairly protected. In this regard, it would be beneficial for both employers and employees if the Draft Guidelines explicitly address these particular situations and support them with concrete examples, which would facilitate more predictable and equitable relations between the parties in practice.
- Implementation of Other Articles of the Law
In the Draft Guidelines, it is stated that wage-fixing and no-poaching agreements, as well as information exchanges aimed at restricting competition, are presumed to disproportionately limit competition due to their legal and economic nature. It is also noted that such agreements and information exchanges are highly unlikely to create economic benefits that could offset their negative impact on competition. As a general rule, these practices will not be eligible for exemption under Article 5 of the Law.
Under Article 6, exclusionary or market-closing abusive acts in terms of labor markets may be the acts of the undertaking in a dominant position in the relevant labor market that restrict workforce mobility against the will of the employees and the exclusionary acts of the undertaking in a dominant position in the relevant market that may have negative effects on the labor market. In the assessment to be made under Article 6 with respect to labor markets, it will be examined whether the relevant undertaking is in a dominant position both in the labor market and in the relevant product or service market.
With respect to mergers and acquisitions that may result in a significant lessening of effective competition, an assessment will made within the scope of Article 7. In the assessment, it will be determined whether the transaction leads to a significant lessening of competition in the labor market, the shares of the parties to the transaction in the relevant labor market and the level of concentration of the market, the closeness of the qualifications of the employees employed by the parties to the transaction, the entry barriers to the relevant product market, the organization of labor suppliers in the relevant labor market, the costs of relocation, the ability of competitors of the parties to the transaction to increase capacity utilization or make new investments, potential competitive pressure, whether the transaction increases the opportunities for cooperation between competitors operating in the relevant labor market and whether the transaction carries the possibility of a lethal takeover.
- Conclusion
While the Draft Guidelines represent a significant step towards more effective enforcement of competition law in labor markets, it provides a framework that focuses solely on general principles. In order to better understand the application of competition law in labor markets and to increase its applicability to concrete situations, it is considered that the Guidelines do not fully meet the expectation to include more concrete and detailed assessments that can serve as a guide for undertakings in the market and help to eliminate the uncertainties that may arise in terms of the Board's competition policies in the labor markets.
Practices related to labour markets should also be considered from the perspective of labor law legislation. It is expected that the Draft Guidelines will include clarifications to resolve uncertainties regarding how non-compete clauses, introduced under the Turkish Code of Obligations based on the duty of loyalty between employer and employee, will be applied in conjunction with competition law rules.
The Draft Guidelines provide a framework for information exchanges within the scope of the general assessments in the Board decisions, but do not sufficiently address the specific issues related to information exchange. In fact, this is also the case with respect to other issues included in the Draft Guidelines. In particular, it is considered that there is a need for a more concrete determination of the application principles such as the doctrine of ancillary restrictions, supported by examples.
In conclusion, it is undoubtedly crucial to avoid anti-competitive behaviors in labor markets, ensure full compliance with competition law during undertakings' operations and communications, and carefully conduct all elements related to human resources in their processes and contracts in accordance with competition law.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.