1. Introduction

Competition law is increasingly relevant for employers, as competition authorities across the globe focus more and more on employment and labour market practices.

No-poach and wage-fixing arrangements are particular areas of focus for enforcement. Whilst the US has long taken a stricter approach to competition compliance in labour markets, the EU and UK are now beginning to follow suit with a raft of recent cases and statements.

  • No-poach agreements arise where 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).

  • Wage-fixing agreements arise where businesses agree to fix employees' pay or other employee benefits (including agreeing the same wage rates or setting maximum caps on pay).

2. A litany of enforcement action

The past couple of years have seen a real gear-change in competition law scrutiny of labour markets in the EU and the UK.

In a first for the European Commission (EC), dawn raids have recently been carried out in relation to a suspected no-poach infringement (and associated anti-competitive exchange of information) in the online food delivery sector. This followed earlier raids carried out in July 2022 aimed at a separate, alleged market sharing infringement. The latest action therefore highlights the willingness of the EC to put its stated labour market priorities into action by expanding existing investigations where labour market concerns arise.

The EC has also demonstrated its appetite to investigate stand-alone no-poach arrangements. In July 2023, it opened an investigation into whether certain players in radio frequency front end (RFFE) products had entered into bilateral understandings not to actively solicit or poach each other's employees, a suspected infringement dating back as far as 2010.

The EC's recent action reflects a similar profile of national cases developing across the EU. Examples include cases from France (no-poaches in the engineering, technology consulting and IT services space), Belgium (no-poaches in relation to private security), Portugal (no-poaches between football clubs, within a national basketball league and in the healthcare sector), Romania (no-poaches concerning automotive engineers), Hungary (wage fixing and no-poaches between members of a recruitment association) and the Czech Republic (a case, subsequently closed, involving no poaches between travel agency associations).

Here in the UK, theCMA is clear about its expectation for heightened competition enforcement in labour markets going forward, having reportedly already engaged with trade unions in relation to potential candidate cases for investigation.Indeed enforcement action is beginning to come through the pipeline, with two ongoing investigations believed to concern wage fixing. In October 2023the CMA opened an investigation into the purchase of freelance services and the employment of staff supporting the production, creation and/or broadcasting of television content in the UK (covering all content other than sport), with a similar case involving sports content having been opened in July 2022.

In another sign of increased intervention in UK labour markets, see our earlier briefing on the UK Government's plans to legislate to limit the length of non-compete restrictions in an employment context to three months.

3. What are competition authorities saying?

Whilst each type of labour infringement may stand alone, they can also be closely aligned. EC Commissioner Vestager, as part of a speechback in October 2021, described two scenarios in which no-poach agreements can amount to cartel-like behaviour. First, "when companies collude to fix the wages they pay; or when they use so-called "no-poach" agreements as an indirect way to keep wages down, restricting talent from moving where it serves the economy best". Second, in markets "where the key to success is finding staff who have the right skills...[and so]... a promise not to hire certain people can effectively be a promise not to innovate, or not to enter a new market". In Vestager's view, the infringing businesses do not need to compete on the same downstream/product market in order for the arrangements to breach competition law because, by virtue of their conduct, they are seen to be competing on the upstream labour market.

Just over a year later, on 9 February 2023, the CMA followed suit; publishing (very brief) guidance describing no-poaches, wage fixing agreements and associated exchanges of sensitive information as anti-competitive in nature. Presumably in a reference to its director disqualification (as well as significant fining) powers, the CMA's guidance refers to the "significant financial and personal consequences for breaking the law" in this area.

The CMA's most recent 2023-2024 Annual Plan highlights enforcement action in labour markets as a focus area, and its March 2023 'Economic Research Strategy' raises labour market power as an area of interest (that is, the extent to which employers are able to keep wages or working conditions below competitive levels).

On wage-fixing specifically, both the EC's and the CMA's newly adopted 'Horizontal Agreements' guidelines/guidance describe wage-fixing agreements as among the most serious 'by object' infringements, akin to a buyers cartel. This means that, in the views of the EC and the CMA: (1) there is no need to show actual anti-competitive effects in labour markets in order to make a finding of infringement, and (2) arguments that such arrangements should be exempt from competition law on the basis of efficiencies are unlikely to succeed.

4. What about M&A?

The cases discussed above concern restrictions agreed between (employer) businesses. However, where one of those businesses is a purchaser in an M&A context, the ability of that purchaser to use non-competes and no-poach arrangements to protect the value of their investment may be key.

In the UK and EU, the status quo currently remains in the deal space: such restrictions must be "directly related" and "necessary" to the implementation of the transaction (and their duration, scope, and the persons subject to them must not exceed what is reasonably necessary to achieve that end).

However, deal teams should be acutely aware that restrictions going beyond that legitimate interest (for example any form of wage fixing or wider no-poach) face a heightened risk of scrutiny from competition authorities.

Deal teams should also be aware of the need to handle appropriately in due diligence any employment related information that may be considered to be competitively sensitive, which may depend to an extent on the nature of the particular market.

5. Key take-aways

Heightened competition enforcement in labour markets looks set to stay. Businesses should be acutely aware that no-poach and wage-fixing arrangements, in particular, are squarely within global focus and that the consequences of breaching competition laws can be severe (with fines of up to 10% of global turnover, potential private damages claims and, at the UK level, the risk of director disqualification and even potential criminal liability).

Businesses and their HR teams would be wise to review their practices in seeking to recruit and retain staff, and to carefully consider how they interact with businesses seeking staff with similar skills or expertise. Interactions between businesses on labour issues (regardless of whether or not they compete at the downstream level) should be viewed with the same caution as interactions regarding typical parameters of competition (such as price, innovation etc).

In the M&A space, purchasers will want to ensure that their due diligence processes include consideration of potential competition law liability in the employment space. Whereas the ancillary restraints approach to non-solicitation clauses continues to apply to restrictions directly related to and necessary for the implementation of a given transaction, businesses should be aware of the labour market arrangements being acquired as part of the target business to avoid any potential competition law liability.

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.