UK regulator joins the global enforcement trend and warns employers to avoid no-poaching agreements

The overlap between employees’ rights and competition law has long been predicted by competition specialists. Cartel enforcement in labour market agreements became a fledgling activity of competition watchdogs but it is increasingly picking up.

Context

At EU level, the Competition Commissioner highlighted at the end of 2021¹ that no-poaching agreements are “an indicated way to keep wages down, restricting talent from moving where it serves the economy best”.

Competition authorities across Europe have also started targeting no-poaching agreements between competitors. The Portuguese authority has notably investigated and fined the Portuguese Professional Football League and its members for a no-poaching agreement. Authorities in Poland, Romania, Hungary, Lithuania, Finland, France, Spain and the Netherlands have also focused enforcement work on the employment field. 

Across the pond, the US Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”) have been very active in bringing to prosecution cases against companies involved in no-poaching agreements which prohibited them from soliciting each other’s senior employees². At the beginning of the year, the FTC proposed a ban on no-poaching agreements³ and a requirement for employers to rescind existing clauses.

Against the backdrop of an investigation which appears to be looking at such issues, at the beginning of February 2023, the Competition and Markets Authority (“CMA”) issued a guidance note⁴ to employers. The guidance calls out three main types of anticompetitive agreements that can have a negative impact on employees and labour markets:

1. Agreements to reduce employees’ pay packages, including setting maximum caps on pay;
2. No-poaching agreements;
3. Information sharing.

The CMA warned it can investigate businesses if it suspects that fair competition when recruiting or retaining talent is being undermined.

No-poaching agreements

As highlighted above, no-poaching agreements are currently on various EU and US regulators’ radar. The CMA’s guidance makes it clear that agreements between competitors not to approach or hire each other’s employees are unlawful. In other words, even if the employee is free to apply for a job and, subsequently, be hired by a competing company, the mere prohibition on cold calling is considered anti-competitive.

It is important to note that, although the CMA guidance does not spell this out, no-poaching agreements are likely to be treated differently to non-solicitation agreements concluded in an M&A context. The latter are aimed at protecting the acquirer’s investment in a new business and may be justified in certain circumstances and for a limited duration. This is very different to no-poaching agreements concluded outside of any such context and which are much harder to justify under competition law.

Information sharing

Information regarding recruitment, remuneration, benefits’ packages, compensation is not a traditional red-flag when it comes to commercially sensitive information.

Companies should be aware that apart from pricing or cost data, employee information should also be treated as sensitive in day-to-day dealings (e.g. industry association meetings / HR professionals’ discussions), as well as M&A and due diligence context when the potential buyer is a competitor.

The CMA also clarifies that information exchange regarding the terms of contracting freelancers or employing contractors is equally unlawful (and seems to be the subject of its ongoing investigation).

Next steps and recommendations

Given the increased focus on the labour market, companies need to tread carefully when discussing topical issues such as challenges recruiting and retaining key personnel. We recommend that companies refresh and update internal guidance, training and protocols to make sure they refer to these issues as well as traditionally sensitive information such as pricing. HR teams engaging externally in industry fora may need to be regarded as higher risk from a competition law perspective than they may otherwise have been. It would also be sensible to carry out a review of existing contractor or employee contracts to assess whether they may include any potentially problematic clauses.

¹Speech by EVP M. Vestager at the Italian Antitrust Association Annual Conference - "A new era of cartel enforcement" | European Commission (europa.eu)

² Health Care Company Pleads Guilty and is Sentenced for Conspiring to Suppress Wages of School Nurses | OPA | Department of Justice

³Non-Compete Clause Rulemaking | Federal Trade Commission (ftc.gov)

⁴Employers advice on how to avoid anti-competitive behaviour - GOV.UK (www.gov.uk)