Businesses should make sure that their competition compliance programmes extend to cover anyone involved in recruitment and HR, and that those staff are aware of the risks of wage-fixing agreements, non-poaching agreements and information sharing with other companies. This is more important than ever, given the Competition and Markets Authority's (CMA) recent announcement that they have a "couple more" labour market cases in the pipeline. This announcement follows the CMA's publication on 25 January 2024 of its research report on Competition and market power in UK labour markets (the Report) and accompanying speech. The detailed Report (at nearly 200 pages) is expected to inform the CMA and wider government policy thinking. This update focuses on what the Report means for the CMA's work going forward and the likely impact on employers and employees seeking to comply with competition law.

Key competition law findings include the following:

• Non-compete clauses are widespread – the Report presents evidence from several new worker and firm survey sources, which show that non-competes are prevalent across all sectors of the economy, including low-paying sectors, where they may not be justified. Non-competes are typically justified on the basis of enabling investment in workers through training or sharing confidential information, that employers may be less willing to do if employees might take these skills straight to a competitor. Such clauses are particularly common in information and communication technologies, and professional and scientific services.
• Law and policy on non-compete clauses may need updating – the widespread use of non-competes could act as a barrier to changing jobs. According to survey evidence, the most common average duration of an employee's non-compete clause is six months, although year-long clauses are also common. The CMA's view is that the evidence in the Report supports the UK government's desire to legislate to limit post-term non-competes to three months in Great Britain.
• Other clauses may also restrict worker mobility – the Report mentions other examples of restrictive covenants, such as non-disclosure agreements that restrict workers from sharing confidential information with others and non-solicitation agreements that restrict workers from approaching existing clients when changing employer. (It also refers to non-recruitment of co-worker agreements and non-poaching agreements.) Whilst the Report indicates that these are also common in the UK, it does not provide detailed survey evidence on their use.
• Continued use of competition law enforcement powers – the CMA continues its investigation of suspected anti-competitive conduct relating to workers' rates in the sports and non-sports TV production and broadcasting sectors. It has very recently broadened one of its existing cartel investigations to cover suspected unlawful non-poaching arrangements in the consumer fragrances industry.
• Competition law compliance is key – employers are on notice (in particular from the CMA's February 2023 guidance) that they must not engage in price fixing, bid rigging or information exchange in labour markets (i.e. unlawful labour market cartels). Cartels attract the most severe penalties, including fines of up to 10% of worldwide turnover, director disqualification of up to 15 years and criminal sanctions, including imprisonment of up to five years. Ignorance, or the fact that certain conduct has become standard practice in an industry, is no defence.
• Employee non-competes and collective bargaining are outside the scope of competition law enforcement – generally speaking, the following will not breach competition law:
  • an employment contract between an employer and employee (and any non-compete in that contract for the duration of the relationship); and
  • traditional collective bargaining arrangements between employers and employees, which serve to further constructive relationships and mutually beneficial solutions (though what information is shared among employers for the purposes of collective bargaining and what is inappropriate to share should be considered).
• Collective bargaining in the gig economy – for the purposes of the Report, the gig economy is defined as the sum total of all gig workers i.e. individuals who sell their labour services via a digital platform, who are often self-employed. The CMA, and competition authorities generally, will need to consider new questions raised by developments in this area, such as collective action by a group of self-employed people. This may result in the CMA prioritising such developments in the future (and possibly issuing specific competition law guidance).
• Collective bargaining arrangements involving self-employed workers will not be prioritised for investigation – the CMA has explicitly stated that it does not expect to stand in the way of genuine collective bargaining arrangements between self-employed workers and their employers.

A global trend

Portugal

On the same day that the CMA published the Report, the Portuguese Competition Authority (PCA) fined two multinational technology consultancy companies for anti-competitive practices in the labour market between 2014 and 2022. It is the second case in which the PCA has imposed fines for anti-competitive practices in labour markets. The practices in question consisted of non-poaching agreements where companies agreed not to hire, or make spontaneous offers to, each other's employees. Such practices infringe Portuguese competition law, as they restrict a company's ability to make independent strategic commercial decisions (in this case, the HR hiring policy). They are also likely to restrict workers' bargaining power, wage levels and labour mobility. The companies concerned were fined €1,323,000 and €2,481,000, respectively. The PCA is continuing its case against other companies that remain under investigation.

Nordic countries

On 16 January 2024, the Nordic competition authorities (Danish, Norwegian, Swedish, Finnish and Icelandic) published a Joint Nordic Report on competition and labour markets, which found that it was not uncommon for companies to enter into non-poaching agreements. It suggests that there could be scope for more competition law enforcement action in labour markets in the Nordic region, consistent with the approach taken by other European competition authorities.

European Commission

The European Commission is currently investigating alleged non-poaching agreements (and other arrangements) in the online ordering and delivery of food, groceries and other consumer goods in two EU member states, following unannounced inspections at companies' premises in November 2023.

What next?

Whilst the Report focuses on employment non-competes, it is clear that these are not the only type of restriction in labour markets, and competition authorities internationally are taking enforcement action against labour restrictions generally. Companies are at risk of fines if they participate in unlawful labour market cartels, whatever form they take. In the UK, companies may also find themselves having to limit the duration of non-competes to comply with employment law and competition law in the future.