Labour markets in the spotlight of competition authorities

Introduction

In February 2023, the Competition and Markets Authority (CMA) issued guidance for employers, as a timely reminder that competition law also applies to agreements and information exchanges in labour markets and situations such as staff recruitment, retention and working conditions including salaries and benefits. The publication of the guidance confirms that the CMA is aware of, and concerned about, anti-competitive practices within an employment context and wishes to draw businesses' attention to their legal obligations. 

The document follows hot on the heels of an on-going investigation in the UK into suspected anti-competitive behaviour in the purchase of freelance services for production and broadcasting of sports content. The investigation relates to an agreement between a number of companies to fix the rates offered to staff. The CMA has recently also confirmed that agreements to fix wages are a hardcore restriction of competition law in the context of joint purchasing (para 6.9, draft Horizontal Guidelines published in January 2023). Finally, the CMA has stated, as part of its consultation into its annual plan for 2023/24, that it will "continue to clamp down on cartels and other collusive behaviour that … interfere in labour markets".

All these developments confirm that the CMA is increasing its focus on employment-related conduct and will not hesitate to bring action against companies that contravene the law. But they are not the only competition authority that is showing interest.

What types of behaviour are of concern?

Anti-competitive agreements can negatively impact labour markets, by reducing employees’ pay and reducing their mobility and choice. With that in mind, three main areas of concern have been identified:

• No-poaching agreements: two or more parties agree not to approach or hire each other's employees, either with or without their consent.
• Wage-fixing agreements: agreements between a number of businesses which either fix the salaries or benefits of their respective employees or place a maximum limit on it.
• Information sharing: the sharing of competitively sensitive information about, for example, staff wages, benefits, bonuses and other terms and conditions on which a person is employed, either directly or at trade associations or through the use of benchmarking exercises.

In the UK, these agreements will infringe Chapter 1 of the Competition Act 1998 and, if investigated, can lead to financial penalties of up to 10% of a business's worldwide turnover. There would also be significant negative publicity and reputational damage for the companies involved, and the CMA may also impose penalties on individuals, such as criminal prosecution (in the most serious cases), personal fines and director disqualification. Similar sanctions apply in other jurisdictions.

Other countries

But it is not only the CMA that is paying attention to employment issues. Several other European countries are dealing with cases in this area (including leniency applications). This has followed the approach by the US authorities which started looking at competition issues in labour market a couple of years ago.

In the US, in 2016 the Department of Justice (DoJ) and the Federal Trade Commission (FTC) released joint antitrust guidance outlining how to avoid antitrust issues in recruitment and compensation practices. The guidance confirmed that the DoJ intended to treat certain types of agreements as criminal and has since brought criminal charges against companies ("therapist staffing companies" and operators of “outpatient medical care facilities") that have entered into wage-fixing or no poach agreements.

In the EU, the Competition Commissioner confirmed in 2021 that the employment market was on its radar and intended to investigate types of agreements similar to the US, such as wage-fixing and no-poaching. Within the EU, these types of agreement, often involving sport, have been reviewed by national competition authorities: Lithuania and Poland have investigated wage fixing agreements in basketball, Portugal in relation to no-poach agreements in football and Hungary in relation both wage-fixing and no poach agreements in the recruitment sector. 

This confirms that anticompetitive behaviour in the employment market is of concern to regulators around the world and care should be taken to ensure that HR professionals do not engage in activities that may fall foul of the law.

What other agreements are impacted?

The list of problematic agreements that competition authorities have explicitly found to be problematic is not exhaustive and it is possible that other types of employment agreement would be found also to infringe competition law. 

Information Exchanges and Trade Associations

Businesses should not share competitively sensitive information with their competitors directly or, for example, at meetings of trade associations or industry bodies. However, when it comes to recruitment, it may not be entirely clear just who a company's competitors are. For example, certain types of employees such as engineers or in-house lawyers work across several different sectors, and so companies in different sectors will compete for those same engineers or lawyers. In a recruitment context, a company's competitors may be completely different from those in a commercial context. Indeed, if a company interviews several candidates from a range of sectors and as part of the process, HR asks for information about salaries and other terms and conditions, it will be possible for that company to build up a clear idea of its competitors' (in both a commercial and recruitment context) salaries and expenses. This may have the effect of restricting competition as it may reduce employee salaries or benefits.

Considering the above, businesses should be mindful that when recruiting, their set of competitors might be larger. While regulators are predominantly concerned with agreements between competitors, it could be argued that the concerns are equally valid for competitors in recruitment as it does to commercial competitors. For example, while it is clearly an infringement for two businesses active in the same sector to agree not to poach each other's employees, it would likewise be an infringement for a company in sector A to agree with a company in sector B (ie not competitors in a commercial context) not to poach each other's engineers or in-house lawyers. 

Benchmarking

It is common for businesses to seek to benchmark themselves against their competitors to ensure that their salaries are at market rate and are attractive to candidates. It is not unknown for HR to call their peers within competing businesses to obtain the information and then use that data to form the basis of, for example, the annual salary review process. Such behaviour could be considered in some cases be anticompetitive and a "hardcore" infringement of competition law. It is imperative that training is provided to relevant employees as to how to safely and legally benchmark.

Merger and due diligence

Due diligence enquiries and pre-merger discussions are important steps in the acquisition or disposal of a business. Providing sensitive business information to a potential buyer or merger party allows it to assess the true value of a business, consider the risks of the transaction and assess whether the target business is in fact a ‘good fit’ with its own. However, where actual or potential competitors exchange confidential competitively sensitive information about current or future prices or disclose trade and business strategies that could cause competing firms to adjust their prices, this could be a breach of competition law even when a merger or acquisition is considered. The FTC has issued guidance and fined companies that exchanged information during a due diligence process . It is therefore important that appropriate precautions, such as NDAs and clean teams, are taken when exchanging competitively sensitive information in the context of proposed M&A transactions. This includes data on salaries and bonuses which are an essential part of a business's costs and are considered to be highly sensitive. That information should therefore be visible and accessible only to members of the clean team and only for the purpose of assessing the potential transaction.

How should businesses proceed?

Given the activities of various competition authorities and the newly released guidance from the CMA, competition authorities are particularly interested in clamping down on what may otherwise be seen as standard business practice. Businesses should therefore ensure that the relevant departments, such as HR and recruitment, are trained in competition law compliance. Members of those teams need to be aware of potential areas of concern when speaking to their peers in other businesses, to mitigate competition risks.

We should not forget that the rules on information exchange also apply to benchmarking. HR personnel should be fully aware of and trained in how to conduct these in full compliance with competition law (such as the need to use third parties, aggregation of data and anonymisation, the inclusion of a certain numbers of participants etc). 

We suggest that businesses should also review existing agreements/practices to see if they directly or indirectly have the effect of amounting to non-poaching or wage fixing. Are there any agreements with competitors (commercially or in recruitment) where it is explicitly stated that they will not approach each other's employees? Has the company agreed with its competitors that they will not pay above a certain amount or the terms on which it will employ staff? Does the company routinely contact competitors to benchmark themselves? If so, advice should be sought on how to proceed to minimise the risk of a CMA investigation.

How we can help

There is increased global scrutiny into the employment market and the guidance from the CMA in an indication of the direction that the regulator intends to go. It is key that businesses and HR alike act now to ensure that they have adequate procedures in place and suitable training for relevant staff. Our competition experts are well placed to assist and have significant experience in competition compliance, training and regulator investigations. We can review your existing competition law compliance policy, or prepare a new one, to ensure that policies are in place to mitigate and reduce any possibility of a competition law infringement.