Competition on the labour market is high on the agendas of competition authorities. This will come as no surprise, in light of the enormous shortage on the labour market at present. Employers want to retain their staff and sometimes make (prohibited) agreements with competitors to achieve that aim. The number of self-employed persons and flex workers on the labour market is also increasing. They want to negotiate good employment conditions, which is not always allowed. Competition authorities are facing new dilemmas as a result of these developments.
Martijn Snoep – the Chairman of the Board of the Netherlands Authority for Consumers and Markets (ACM) – recently called on competition authorities to keep a close eye out for anti-competitive practices on the labour market and to take action where necessary. The European Commission (the Commission) has also announced that it is focusing its attention on the interaction between competition and the labour market. Companies that engage in wage cartels or no-poach agreements run an increased risk of (high) fines.
Where do the labour market and competition law meet? What is the reason for this new focus? And what can employers and employees expect in the coming years? Read all about it in this blog.
What are labour market cartels?
The cartel prohibition means that companies are not allowed to make agreements or engage in concerted practices that may restrict competition. That prohibition is set out in Article 6 of the Mededingingswet (Competition Act). Agreements among employers about salaries or other employment conditions expressly come under the cartel prohibition (Article 101(1)(a) TFEU), since employers thus directly fix the trading conditions. Agreements not to hire or poach each other’s staff may constitute a prohibited market-sharing agreement, according to the Commission and the Court of Appeal of 's-Hertogenbosch.
The labour market is a bit of an outsider in competition law. ACM cannot always intervene in cartels on the labour market, since the labour market consists of both companies (employers) and persons (employees). Competition law applies to companies only. In principle, employees are not companies and therefore do not fall within the scope of the Competition Act.
On the other hand, however, self-employed persons are deemed to be businesses. Unlike “regular” employees, self-employed persons are therefore subject to competition law and must determine their products, prices and services independently. Collective negotiations and agreements are in fact an important tool for self-employed persons (as they are for employees) to enforce good employment conditions. But self-employed persons then run the risk of violating the cartel prohibition. Situations are conceivable in which competition law does not apply to collective negotiations among self-employed persons (such as the de minimis provision of Article 7 of the Competition Act) or to cases in which ACM will not impose a fine. More information on the position of self-employed persons in competition law can be found in our other blogs.
Competition law does not apply in other exceptional situations either, for instance in the case of collective bargaining agreements. Employers (and employees) agree on employment conditions in collective agreements. That is prohibited, in principle. Such agreements may come under the “Albany exception”. That exception is derived from European case law (Albany, Brentjes and Drijvende Bokken). To remain outside the scope of the cartel prohibition, collective bargaining agreements must be the outcome of negotiations between employers' and employees' organisations. The agreement must also contribute to the improvement of the employment conditions. The Albany exception does not apply if self-employed persons take part in the negotiations (see the FNV/KIEM and Pavlov judgments), because in that case the negotiations are not conducted between organisations consisting exclusively of employers and employees. The Rotterdam Court recently referred to this Albany exception. Employees and employers had agreed that lashing work on board ships would no longer be performed by the crew, but by dock workers instead. According to the court, this agreement between employees and employers was in the interest of safety and improved the employment conditions of the ship's crew. The agreement therefore fell outside the scope of competition law.
US trend spreads across European Union: labour market cartels on the radar
Competition authorities have increasingly turned their sights on labour market cartels in recent years. This trend has blown over from the USA. After several investigations into no-poach agreements among tech companies, an Antitrust Guidance for Human Resource Professionals was published in the USA in 2016. This guidance lists examples of prohibited agreements and advises HR professionals on how to act if they encounter such agreements.
This focus on labour market cartels is now spreading across the European Union. In the Netherlands, the first step was taken by ACM in 2019, when it published its Guidelines on Collaborations between Competitors. Those Guidelines were the first to address labour agreements. They reflected ACM's new strategy: stricter enforcement of horizontal restrictions. Chairman of the Board Martijn Snoep warned that the number of fines would increase. Other countries, such as the United Kingdom, Portugal, Poland and Hungary, are now also taking action against prohibited labour market agreements.
The same development is taking place at a European level. In the draft revised Horizontal Guidelines, the Commission now classifies wage cartels as restrictions of competition by object, i.e. agreements that are anti-competitive by their very nature. At the end of 2021, Margrethe Vestager (Vice President and Commissioner for Competition at the Commission) gave a speech in which she revealed that the Commission is expanding cartel enforcement to include labour markets. This expressly includes no-poach agreements and wage-fixing agreements.
Enforcement of labour market cartels in the Netherlands: what lies ahead?
Although the Commission has therefore also launched an offensive, the labour market remains primarily a national affair. ACM is now encouraging all national competition authorities to be alert to the interaction between competition and labour markets. ACM says it will primarily focus in this regard on:
- wage cartels of employers;
- no-hire/no-poach agreements among companies;
- mergers leading to a buying monopoly (monopsony) of an employer; and
- tariff agreements among self-employed persons.
ACM’s actual focus will most likely be on points 1 and 2, i.e. stricter supervision of wage cartels and no-poach agreements. When the chairman of Techniek Nederland this year called on the sector not to poach each other’s staff, he received a phone call from ACM. The chairman then corrected his plea. ACM has also stated that it intervened when companies discussed no-hire agreements to solve labour shortages. It has furthermore investigated wage agreements among supermarkets. Supermarkets allegedly agreed a 2.5% wage increase among themselves. That could be classified as a wage cartel (point 1). When a collective bargaining agreement was reached (the Albany exception referred to above), ACM washed its hands of it on the grounds of prioritisation.
No-poach agreements (point 2) are not always in breach of competition law. The doctrine of inherent restrictions may offer an escape. This follows from the Wouters, Meca-Medina and Piau judgments, among others. A restriction of competition is permitted as an inherent restriction, provided that it is necessary to achieve legitimate cooperation. No-poach agreements may therefore be permissible if companies work together, for instance, in the field of the distribution or production (possibly in the form of a joint venture). Such agreements must then be necessary for the cooperation.
No-poach agreements may also be permissible (to a certain extent) in the context of M&A transactions. No-poach agreements may be necessary to protect the value of the company to be acquired. The Commission and ACM designate no-poach agreements in the context of an acquisition as an ancillary restraint (Article 10 of the Competition Act). This is subject to the condition that the clause does not go beyond what is necessary.
This does not mean that the stricter supervision of labour market cartels will have no consequences for merger control: ACM has stated (point 3) that it will keep a close eye on mergers that give rise to a monopsony. A labour market monopsony exists if the number of employers for a certain type of labour is limited to one or only a few. This may be problematic, because the employer is then able to keep wages down, for instance. A monopsony of an employer is rare, according to ACM. When Sanoma was acquired by DPG, for instance, ACM assessed the impact of the acquisition on the employers’ market for journalistic services, but did not see any problems.
Another reason for ACM’s increased focus on (1) wage cartels and (2) no-poach agreements is the many exceptions to the cartel prohibition that apply to self-employed workers (point 4). ACM furthermore stated in its Guidelines on Price Arrangements between Self-Employed Workers that it would not impose fines if self-employed workers agreed on a (minimum) price in order to safeguard a minimum subsistence level. ACM is therefore unlikely to take action very often in practice against price agreements between self-employed workers.
What are the consequences of labour market cartels?
Companies and individuals that violate the competition rules run the risk of (high) fines. The maximum fine that ACM can impose is €900,000 per violation or, in the case of companies, 10% of the group turnover, whichever is higher. In the case of cartels, the maximum fine is also dependent on the duration of the cartel. It may therefore be as high as 40% of the total group turnover in the case of long-term cartels. The fine is furthermore doubled if a company has infringed the cartel prohibition in the past already.
Moreover, agreements that violate competition law are null and void (Article 6.2 of the Competition Act). Employees who incur loss as a result of prohibited agreements are furthermore entitled to compensation. Employers in particular should therefore be alert to prohibited agreements on the labour market.
Information on dawn raids by ACM and the European Commission can be found at invalacm.nl