Antitrust enforcement in labor markets has gained momentum in recent months as agencies in the US, Europe and Asia signal tougher enforcement against businesses engaged in no-poach agreements, wage fixing or other practices which restrict competition for labor. As the US Federal Trade Commission (FTC) consults on a proposed rule that would ban nearly all post-employment non-compete agreements, more authorities around the globe are focusing on labor market issues and alerting companies that compensation and hiring practices are under increased scrutiny. Recent developments underscore the need for companies to audit their HR policies and practices and prepare for a potential new battlefield ahead.
In the US, this focus pre-dates the Biden Administration, as the FTC and Antitrust Division of the Department of Justice (DOJ) issued joint Antitrust Guidance to Human Resource Professionals in 2016, warning that anticompetitive agreements such as wage fixing or no-poach could be prosecuted criminally. The Biden Administration’s messaging and enforcement efforts in protecting competition in labor markets, however, have raised a heightened awareness of this issue and reflect a growing global trend. For example:
- In October 2022, the DOJ secured its first criminal no-poach conviction against VDA, a healthcare staffing company that allegedly colluded with a competitor not to recruit or hire each other’s nurses and not to raise nurse wages. This first successful prosecution followed a surge in the number of civil as well as criminal suits since 2016.
- The DOJ also scored a “victory for labor” in November 2022 in its successful court challenge of Penguin Random House’s proposed acquisition of Simon & Schuster, where the primary claim was that the transaction would suppress best-selling author advances by reducing competition.
- More recently, in January 2023, the FTC announced a proposed rule that would ban nearly all post-employment non-compete agreements, with limited exceptions. This followed three enforcement proceedings against companies for non-compete violations.
But this is not just a US phenomenon. Other global competition enforcers are taking steps to focus on labor issues in antitrust. We highlight below the latest developments in Europe and in Asia and the implications for businesses and, in particular, their HR and legal teams.
Under the spotlight in Europe
In Europe, several national competition authorities have already been active in this area, publishing papers and guidelines on labor markets (e.g. Portugal) and signaling that they are targeting potentially restrictive practices with enforcement actions (e.g. in the Netherlands, France, Portugal).
Academic research identifying potential issues with non-compete clauses in labor markets is emerging as well: for example a recent study by Italian economists on the impact of non-competes indicated that “The results show that, at 16%, the overall incidence of non-compete clauses in Italy is slightly lower than in the United States”. The Portuguese Competition Authority’s chief economist also indicated at a recent conference that tougher enforcement in labor markets can help tackle inflation driven by worker shortages. Although no-poach and wage-fixing agreements appear less common in Europe than in the US, academic research often precedes an uptick in antitrust enforcement or further in-depth scrutiny by way of sector inquiries (as demonstrated in the pharma and digital sectors).
We are already seeing more enforcement action across Europe, from football teams in Portugal, supermarkets in the Netherlands, HR consultants in Hungary, private schools in Spain to the automotive sector in Romania, with some investigations starting with unannounced inspections (“dawn raids”) and signs of more to come.
The theme is also getting more traction at the EU level. For instance, a senior EU official in June 2022 referred to no-poach/no hire agreements as an area of enforcement interest and in early February 2023 Executive Vice-President Margrethe Vestager restated a clear message that the Commission is monitoring this space: although non-compete clauses may not be widespread in the EU so far, the Commission will not hesitate to act if they come to its attention.
In the UK, the Competition and Markets Authority (CMA) has also raised potential concerns about competition in labor markets and a focus on protecting employees. In early February 2023, the CMA published materials to boost business compliance and remind employers of their legal obligations to avoid anti-competitive practices (including no-poach, wage fixing and illegal information exchange) which can negatively impact employee pay, mobility and choice, as well as a business’s ability to expand. The UK Government’s current focus on improving labor market participation and filling skills gaps to drive economic growth is likely to reinforce any enforcement action the CMA takes.
Rising up the agenda in Asia
Developments in Asia also indicate more enforcement action ahead. For example, the Japan Fair Trade Commission (JFTC) previously carved out employment issues from antitrust enforcement, but in 2018, the agency published a report indicating that certain practices, such as no-poach, non-competes, salary cartels and abuse of superior bargaining positions towards employees or freelances, could infringe antitrust law. The JFTC first warned organizations in the sports sector against imposing restrictions on player transfers and, in 2019, it dawn-raided a talent management company to investigate allegations that the company improperly interfered with deals between talents who had left the company and TV stations.
Elsewhere in Asia, competition authorities and/or courts have shown that they are willing to act against anticompetitive practices in labor markets, even prior to the current wave of global enforcement focus. For instance, in 2018, Hong Kong’s Competition Commission (HKCC) published an advisory notice signaling that certain employment-related practices (e.g. no-poach, wage fixing or determining other employment terms and conditions such as benefits and allowances, or exchanging competitively sensitive information regarding this) can give rise to competition concerns. And most recently, in 2022, the HKCC published another advisory highlighting that the process of joint negotiations and outcomes between employee bodies (including trade unions) and groups of employers may, in certain circumstances, give rise to competition concerns in the labor sector. Lastly, in mainland China, the Supreme People’s Court in 2021 endorsed a lower court’s judgment ruling that no-poach and wage-fixing agreements infringed competition law.
Lessons learned and practical tips
In the current economic climate, global antitrust authorities’ focus on competition issues in labor and employment markets is only set to rise. Antitrust authorities are not shy of bringing novel enforcement actions against conduct that restrains competition in labor markets, particularly if such practices may harm individuals seeking jobs or companies trying to hire new staff.
Significantly, in the labor context, “competitor” includes any business that competes to hire the same employees, irrespective of whether that business makes similar products or provides similar services. This important distinction on the “buy-side” of competition for employees presents risks to businesses across industries, all of whom may be competing for the same type of employee, even though they are not typically seen as competitors on their “sell-side” markets.
Companies should proactively audit their HR practices to ensure they are antitrust compliant in all relevant jurisdictions, taking full account of recent and upcoming developments in antitrust laws and enforcement policies. This includes both day-to-day practices as well as their hiring and employment policies: particular attention should be given to any provision that could be viewed as limiting employee mobility (such as non-compete clauses) and employers should ensure they do not have blind spots and ensure such provisions are objectively justified.
Additional background can be found in the 22th episode of our Essential Antitrust podcast series, Meghan Rissmiller discussed with Holly Insley, Ermelinda Spinelli and Bruce McCulloch the latest trends in antitrust labor enforcement and the practical implications for businesses. Listen to the podcast now.
Please contact us or your usual contact in our Antitrust, Competition and Trade team if you would like to discuss this update further. To read more about these and other antitrust developments, refer also to our Global antitrust in 2023: 10 key themes report.