No-poach and wage-fixing agreements – Is antitrust game?

No-poach and wage-fixing agreements are somewhat of a new trend in antitrust enforcement. The US Department of Justice (DoJ) recently beat a challenge against its first criminal wage fixing case, involving wages for physical therapists. The DoJ has opened two further labour-related cases, also in healthcare. Meanwhile in the EU, the Commission has been vocal about the harm caused by no-poach and wage fixing agreements, and the Portuguese and Dutch competition authorities have investigated potential infringements. There are further developments in other jurisdictions across the world.

Below we take a closer look at these cases and highlight some key points that companies can distil from them. In short:

  • In some cases there may be a risky combination of high incentives to collude and low awareness of competition law.
  • Competition authorities are likely to view labour-related infringements as particularly serious, possibly meriting criminal enforcement (where local rules allow).
  • Multinational firms face risks in multiple jurisdictions. Moreover, infringements have been seen to occur from assistant-level to the top jobs.

United States

First, we go to Sherman, Texas for a case involving the Sherman Act (town and Act named after different Shermans), United States v Jindal.  Two defendants, both in senior positions at the same therapist staffing company, were charged with involvement in a conspiracy with another staffing company to suppress competition by agreeing to fix prices by lowering the pay rates to therapists and assistants. According to the DoJ, the conspiracy was a per se unlawful, and thus unreasonable, restraint of interstate trade and commerce in violation of Section 1 of the Sherman Act.

According to the indictment, one defendant had texted with the owner of a competing staffing company regarding the rates that each company paid their therapists and assistants. The DoJ alleged that the two companies agreed that they would reduce rates paid to therapists and assistants. The defendants also tried to recruit other companies for the conspiracy.

In their challenge, the defendants claimed inter alia that the conduct did not amount to a per se violation of the Sherman Act, because – in short – “wages do not fall with the definition of ‘price fixing’”, ‘price fixing’ relating only to fixing the price of a commodity.

The District Court did not follow them in this narrow interpretation of price fixing, holding among other things:

  • The definition of horizontal price-fixing agreements cuts broadly. Any naked agreement among competitors – whether by sellers or buyers – that fixes components that affect price meets the definition of a horizontal price-fixing agreement.
  • Wage fixing is a form of price fixing and thus illegal per se. Whether the indictment refers to the “pay rates” of the therapists and assistants as “prices” or “wages” does not affect the outcome. Moreover, the Sherman Act protects “all who are made victims of the forbidden practices by whomever they may be perpetrated,” and those protections extend to sellers of goods and services – such as the therapists and assistants – to the same extent they do buyers, consumers, or competitors.
  • The fact that previous cases involving wage fixing were civil rather than criminal does not matter: “Just because this is the first time the Government has prosecuted for this type of offense does not mean that the conduct at issue has not been illegal until now. Rather, as these cases indicate, price-fixing agreements—even among buyers in the labo[u]r market—have been per se illegal for years”.

The defendants cannot say that they were not warned. Since 2016, the DoJ and FTC maintain guidance for human resource professionals on antitrust law. Confirming the DoJ’s commitment to enforcing antitrust law in this area, the agency has brought two other cases, again in the healthcare sector. In United States v. Surgical Care Affiliates, LLC and SCAI Holdings, LLC, the DOJ alleges that Surgical Care Affiliates, an operator of outpatient medical care centres, agreed with two competitors not to solicit each other’s senior-level employees. In United States v. Hee, the DOJ alleges that a healthcare staffing agency and its former regional manager conspired with competitors to allocate nurses and fix their wages.

Europe

In Europe, case-law on competition law in labour markets has traditionally been limited to collective negotiations between employers and employees, including where the latter are represented by unions, the famous Albany and FNV Kunsten judgments. More recently, the European Commission issued a draft notice on the application of competition law to collective agreements between solo self-employed service providers (see also this interesting article).  

However, if you think that’s where the impact of competition law on labour markets ends, you haven’t been paying attention. In a speech, Commissioner Vestager spoke out strongly against “no-poach” agreements as an indirect way to keep wages down, restricting talent from moving where it serves the economy best. In some markets, the key to success is finding staff who have the right skills. In these cases, a promise not to hire certain people can effectively be a promise not to innovate, or not to enter a new market.

A case involving just this kind of harm is currently underway in Portugal. In May 2020, the Portuguese competition authority imposed interim measures ordering the Portuguese Football League to stop enforcing no-poach agreements between teams in the league. Since then, a statement of objections was issued in April 2021, targeting 31 addressees. Showing it is taking a leading role in this area in Europe, the Portuguese authority published, among other materials,  a detailed 45-page report on anti-competitive practices in labour markets. In its priorities for 2022, it confirmed that it would continue to focus on no-poach and wage-fixing agreements.  

The Commission has shown support for Portugal’s football league case by including a ‘hypothetical’ example in its draft notice on the application of EU competition law to collective agreements between the self-employed. It involves a scenario in which “[t]he sports clubs in Member State X agree among themselves not to hire athletes from each other, for the duration of their contracts with the respective sports club”, making clear that this type of agreement is likely to restrict competition ‘by object’. Make no mistake: inclusion of such an example in Commission guidelines indicates agreement at EU-level that the type of conduct under investigation in Portugal is unlawful.

Arrangements between competitors on employment terms were also recently investigated by the Dutch ACM. The case involved negotiations between representatives of Dutch supermarkets and representatives of their employees. However, those negotiations broke down, and the ACM had indications that several supermarkets subsequently agreed on a limited wage increase of 2.5 percent outside the context of the collective negotiations. According to the ACM, this may indicate an illegal wage-fixing cartel. However, after employers and employees agreed on a new Albany-protected collective agreement, which will take effect retroactively, the ACM suspended its investigation.

Brazil

Returning to healthcare and the life sciences, news emerged in March 2021 that the Brazilian competition authority CADE had opened an investigation in the health sector for alleged exchange of information on wages and other benefits offered to employees, and for price fixing and coordination of hiring terms and commercial conditions.

This marks the first time CADE is investigating such conduct in Brazil, a country that also views collective agreements relating to labour as falling outside of the purview of antitrust laws. It will be interesting to read more about it if CADE takes further steps with respect to the alleged infringements. Whilst not many details on the case are currently publicly available, CADE’s tough approach shows this is an area of competition law that multinational companies will need to monitor across their international operations.

Surveying the landscape – What should companies be mindful of?

Serious risk of exposure

Companies should take note of the shift of focus towards labour markets when considering their compliance activities for the year ahead. The exposure in this area is not limited to fines. The narrative around these infringements (denying employees higher pay) is reputationally damaging and may incentivise authorities that have the availability to do so to impose sanctions on individuals.

The following factors may increase risk of exposure depending on the circumstances:

  • Incentives – Staff retention has become a big focus for many companies, and HR departments are under pressure to deliver on this. Companies also share an interest in keeping labour costs low. There may be significant incentives to collude in this context.
  • Awareness – HR departments are not always the focus of company compliance programmes. Even if company-wide compliance training is mandatory, the scenarios in that training may not be relevant to HR managers. Coupled with potentially increasing incentives to collude, there may be a risky lack of awareness of what competition law prohibits.
  • Cross-company – The cases described above show infringements may happen at all levels, from assistants to highly-paid football players. Agreements not to poach each other’s staff or fixing wages, or even sharing commercially sensitive information on wages may infringe competition law regardless of the level of seniority of the jobs affected.
  • Knowing your competitor – Two companies may not compete on a product market, but they may still compete for the same employees. When competing for certain employees, they may act on a national or even global level, whereas for others competition may be local. It requires individual assessment to determine who one’s competitors are in the labour market, and companies cannot rely on analysis done in relation to product markets.
  • Agents – Third party agencies play a large role in HR. Often these agencies work for several companies that are each other’s competitors, and the agents who work there are aware of sensitive information on wages etc. There are therefore further risks of ‘hub and spoke’ type arrangements, facilitator-led collusion or even information exchange between agents.

Criminal enforcement?

It is important to note that the US DoJ has now opened two criminal prosecutions against individuals for unrelated labour-related infringements of the Sherman Act. One can ask the question what this could mean in other jurisdictions with criminal enforcement of the competition rules.

For example in the UK, no criminal cartel case has been brought to trial since two directors were acquitted by a jury in the Galvanised steel tanks cartel in 2015. It has been notoriously difficult to persuade British juries that involvement in a cartel merits criminal liability, particularly under the old test where the prosecution had to prove that the director in question had acted dishonestly, a rule abolished in 2014 (but still applicable in Galvanised steel tanks).

Juries may however take a dim view of no-poach or wage-fixing agreements, if the UK authorities adopt a similar narrative to their US counterparts, who speak of “robbing American workers of higher pay”. Should these agreements be uncovered in the UK, they may well provide a basis for the UK authorities to revive the criminal cartel offence. Even if that is not the route taken, directors involved in these infringements can expect the CMA to apply for lengthy director disqualifications.

Could other arrangements relating to employment terms also be caught?

The enhanced commitment of some competition agencies to address anti-competitive conduct in labour markets raises the question whether other conduct than no-poach and wage-fixing agreements could be caught too. Can a firm be dominant vis-à-vis its existing or potential employees for example?

There are probably scenarios where it could be. However, it would then be dominant in a purchasing market, and cases involving abuses by dominant purchasers are rare. Analogies with commodities as inputs are moreover dangerous, as an individual can only commit to working for one organisation. The relationship is therefore by its nature exclusive.

That being said, there are sectors that rely almost exclusively on their human resources to compete downstream, and it is not unthinkable that there could be practices by a dominant ‘buyer’ of labour that could restrict competition in the downstream markets on which that firm competes with smaller firms. One could think for example of long non-compete clauses (to the extent not prohibited in the relevant country), exclusive deals with recruitment agencies or even exclusive deals with universities that supply talent for the relevant company.

It goes beyond the scope of this post to speculate on such future cases, and there are obvious flaws in them. However, the expansion into labour markets must mean that competition authorities will start to look at these markets differently and that companies who want to be on the right side of the law need to be on the front foot in terms of understanding the labour markets they are active in.

Stijn Huijts is a partner at Geradin Partners. He previously worked as a Legal Director at the CMA. Photo by Avi Werde on Unsplash.

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