The European Commission (the Commission) is the latest competition authority to publish guidance on how labour market agreements should be dealt with under competition law. The guidance in the Commission's "Competition Policy Brief" published in May 2024 provides a clear signal to employers and other participants in labour markets that they may face significant challenges in seeking to impose or enforce any such agreements. By doing so, they are at risk of sanctions, including significant fines.

What are labour market agreements?

Labour market agreements are twofold:

• Wage-fixing agreements: Employers agree to fix wages or other types of compensation or benefits; and
• No-poaching agreements: Employers agree not to "steal" each other's employees. These comprise:
• No-hire agreements where employers agree not to hire actively or passively each other's employees; and
• Non-solicit agreements (also called "no-cold-calling" agreements) where employers agree not to actively approach another employer's employees with a job opportunity. Such agreements may be sector-wide or only involve a few parties, bilateral or multilateral, and need not be reciprocal (i.e. binding on all parties).

Labour market agreements do not include non-compete clauses, which generally fall outside competition law because they are not agreements between undertakings, i.e. businesses.

In a nutshell

The Commission's view is that:

• labour market agreements have the potential to cause economic harm. Both wage-fixing and no-poaching agreements are detrimental to employees as they reduce wages and other benefits. They are likely to contribute to declining productivity and slower GDP growth, and may ultimately harm consumers (for example, by increasing downstream prices and, in some cases, reducing innovation).
• wage-fixing agreements are considered by their very nature to be harmful to competition, which means that there is no need to consider the actual effects of such agreements (they are so-called "restrictions by object"). They are viewed as being akin to a buyers' cartel, as they are a form of purchase price fixing. "Restrictions by object" are the most serious infringements of competition law and attract the highest level of fines.
• all forms of no-poaching agreements are likely to be viewed as buyers' cartels and therefore "restrictions by object", as no-poaching is a form of supply market sharing.
• in theory, the parties to a wage-fixing or no-poaching agreement could argue that the agreement has a legitimate objective, such as:
• guarding against "investment hold-up", as it incentivizes companies to invest in training their employees without fear that they would be later hired by competitors; and
• protecting companies' intellectual property rights (such as trade secrets), to which employees become privy and which they could take with them to competitors.

In practice, such arguments are unlikely to succeed (especially for wage-fixing), particularly since the same objective may be achieved by less restrictive means, such as non-disclosure agreements (NDAs), obligations to stay with an employer for a minimum period, repayment of proportionate training costs, or gardening leave. Non-compete clauses, provided they comply with national competition law, would also be considered a less restrictive alternative.

• it would be difficult for the parties to argue that a wage-fixing or no-poaching agreement is objectively necessary for them to enter into a particular transaction (such as a research joint venture) or relationship (for example, to supply certain goods to each other). To do so, they would need to show in particular that there are no less restrictive means of ensuring the transaction/relationship, such as NDAs etc. (as set out above). The parties would also need to demonstrate that the scope of the agreement was sufficiently limited in terms of the affected employees, duration, and territorial scope.
• wage-fixing and no-poaching agreements are unlikely to satisfy the criteria for exemption from competition law. This is particularly true for wage-fixing agreements because it seems difficult to argue that these may have any pro-competitive effects. Even if it could be argued that no-poaching agreements have pro-competitive effects because they may, for example, guard against "investment hold-up" and give rise to net efficiencies (which is not certain), it is likely that there are less restrictive ways of achieving the same result (see above).

What can we expect to see moving forwards? 

Competition in labour markets is a hot topic and this looks set to continue.

The Commission's recent Policy Brief is intended to ensure that national competition authorities (NCAs) in EU member states take a consistent approach when enforcing competition law in labour markets. Given that labour markets are often national, regional or local, NCAs are more likely than the Commission to deal with labour market agreements, although the Commission is investigating alleged no-poaching agreements (and other arrangements) in the online ordering and delivery of food, groceries and other consumer goods. NCAs have been active in this area in a number of member states (see our earlier update "Competition law enforcement gains momentum in labour markets").

As the UK is no longer a member of the EU, it remains to be seen whether the Competition and Markets Authority (the CMA) will endorse the Commission's position or issue further guidance following publication of the CMA's short guide for employers in February 2023.

Companies should take steps to ensure that their practices comply with competition law, given the clear messaging from the Commission (and other authorities) that labour market agreements should be viewed as cartels, which attract the largest fines.

Please contact a member of the Dentons Competition team for further information.