The Risks of Labor Market Restrictions on Competition
In recent years, both national and EU competition authorities have increasingly focused on labor market restrictions, particularly wage-fixing agreements and no-poach agreements.
Although these types of clauses are commonly used in transactions involving the sale of corporate shares (M&A), IT service contracts, and cooperation framework agreements, they may raise serious concerns from a competition law perspective. Therefore, individual assessment is always recommended. The Directorate-General for Competition of the European Commission generally considers wage-fixing and no-poach agreements to be restrictions of competition “by object,” and provides very limited room for alternative classifications or for proving their lawfulness.
Typically, such an agreement may be considered acceptable from a competition law perspective if it is linked to the main agreement between the parties and complies with the requirement of proportionality, which must be assessed on a case-by-case basis.
According to last year’s Competition Policy Brief, the European Commission has not yet issued a formal decision on wage-fixing or no-poach agreements, but it is actively investigating such cases and has also conducted unannounced inspections (so-called dawn raids) in this area. The Commission has also noted that, based on the case law of the Court of Justice of the European Union, such agreements are likely to qualify as restrictions of competition by object under Article 101 TFEU. This means that in investigations against companies entering into such agreements, the competition authority may establish an infringement through a more formal procedure, without having to assess the actual effects of the agreement—potentially leading to the imposition of significant fines. Several national competition authorities (e.g. Slovakia, Portugal, Lithuania) have already taken action against labor market restrictions and imposed fines amounting to millions of euros. The Hungarian Competition Authority (GVH) has also investigated a case involving a no-poaching clause, which resulted in a fine of several billion HUF.
In some cases, due to the long-term nature of cooperation between certain economic operators, such restrictive clauses may fall into oblivion or the current management may not even be aware of their existence. However, this does not constitute an exemption from the supervisory authority’s action.
In light of the above, we recommend that our clients consult an expert to assess the legal compliance of their existing or future contracts and, if necessary, amend any problematic agreements to ensure compliance with both competition and labor law requirements.
