The application of antitrust principles in competition for employees

1. Introduction

No-poach agreements are contractual agreements or understandings not to hire or attempt to hire away executives and employees of the other party or competitor. In the USA and other jurisdictions, such agreements have long been regarded as cartel agreements and prosecuted accordingly.

After the European Commission ("Commission") published its position on this topic in a competition policy brief in May 2024, it imposed the first fine for a no-poach cartel between Delivery Hero and Glovo in the amount of EUR 329 million at the beginning of June (press release). The ECJ also recently commented on the restrictive effect of employee-related regulations in the context of sports antitrust cases.

Against this background, it is now time (at the latest) for European companies to take a close look at this topic. The key principles to be observed with no-poach agreements are explained below.

2. Antitrust principles in the labour market - Commission findings

In the Competition policy brief, the Commission firstly states that no-poach agreements - in the form of "no-hire" (i.e. active and passive poaching activities) as well as "non-solicit" agreements (only active poaching activities) - cause economic harm. The same should also apply to wage-fixing agreements, i.e. agreements on the level of salaries or other remuneration.

In the further analysis, no-poach agreements are regarded as a form of resource sharing (supply-source sharing) and wage-fixing agreements as price fixing of purchase prices and are thus categorised as classic cases of restrictive agreements within the meaning of Article 101 (1) TFEU (cartel ban). The Commission also assesses such agreements as a restriction of competition by object, with the consequence that an infringement of the prohibition of cartels exists per se, without the existence of an anti-competitive effect being relevant in the individual case.

The Commission's view that all companies - regardless of the sector they come from - are regarded as competitors on the labour market is an important point in the Competition policy brief is of great significance in practice. Whereas price fixing and market sharing as (particularly serious) hardcore restrictions of competition require a competitive relationship between the companies involved in the agreement on the product market concerned, all companies are competitors on the labour market, regardless of their business activities.

3. No-poach and wage-fixing agreements as necessary ancillary agreements

Like other agreements that restrict competition per se, no-poach and wage-fixing agreements may in principle be permissible as necessary ancillary agreements to agreements that are neutral under antitrust law (such as supply agreements, R&D co-operations, company purchase agreements). However, high requirements apply here and the contracting parties are obliged to provide evidence of their fulfilment. It is particularly important in this context that no equally suitable but less restrictive measures are available to achieve the legitimate objective and that the scope of the regulation is limited to what is necessary.

In any case, the Commission assumes that the requirements for both no-poach and wage-fixing agreements are unlikely to be met on a regular basis.

Non-solicitation agreements in the form of non-solicitation (active solicitation activities) in the context of company acquisitions are an exception. Corresponding provisions are necessary to ensure that the value of the target company is not subsequently reduced by the seller poaching (important) employees.

4. Delivery Hero / Glovo decision

Delivery Hero and Glovo are two of the largest food delivery services in Europe. As part of Delivery Hero’s minority investment in Glovo in 2018, the companies initially agreed on a mutual non-takeover clause for certain employees. Shortly afterwards, this agreement was extended to a general agreement not to actively approach each other's employees.

As Delivery Hero`s minority shareholding did not confer control over Glovo, the Commission concluded that the agreements constituted no-poach agreements in breach of antitrust law until Delivery Hero acquired sole control in 2022. The Commission deemed also other behaviour such as the exchange of competitively sensitive information and the sharing of customer markets to be antitrust violations and imposed a fine of EUR 223 million on Delivery Hero and EUR 106 million on Glovo.

The press release does not provide further details, but the publication of the full decision will provide further insights into the specifics of the case and the Commission's legal assessment.

However, it is already clear that the Commission is applying the principles from the Competition policy brief in practice and imposes significant fines for infringements.

5. ECJ judgements

In the "Royal Antwerp Football Club" and "FIFA Transfer Rules" (Diarra) cases, the ECJ applied antitrust law assessments to employer collusion outside of collective bargaining for the first time, which it regularly considers to be permissible due to the socio-political objectives pursued with them.

The subject matter was the Homegrown Player Rule and the Fifa transfer rules. The former is a UEFA rule that prescribes minimum quotas for locally trained players. The latter include FIFA regulations that penalise a breach of contract or any other unilateral, non-consensual termination of contract by the player.

According to the ECJ, the labour markets constitute independent markets in which restrictions on competition can lead to a reduction in wages and restrictions on the mobility of employees and thus to damage to the employee side.

With regard to the Homegrown Player Rule, the ECJ found that this could have a restrictive effect on the labour market of professional football players. Whether this is actually the case must be measured by whether the rule ultimately leads to the foreclosure of national markets. This would depend in particular on the proportion of players affected.

In contrast, the ECJ's assessment of the FIFA transfer rules is clearer. The sanctioning of unilateral obligations of players restricts competition for players and was categorised by the ECJ as a restriction of competition by object in the form of a no-poach agreement.

In both decisions, the ECJ also discusses the possibility of an exemption from the ban on cartels under Art. 101 (3) TFEU. While it is made clear in relation to the FIFA transfer rules that an exemption cannot be considered, as the regulations are not indispensable to achieve any efficiency advantages of the FIFA transfer rules, it remains vague in relation to the Homegrown Player Rule and leaves the examination to the referring court.

The following key findings of the ECJ can be derived from the two judgements:

• Antitrust law also applies to the labour market as an independent market, both to agreements between employers' associations and to agreements directly between two or more employers.
• No-poach agreements are to be classified as restrictions of competition by object, i.e. it does not depend on whether the regulation has an impact on the labour market.
• Exemption of no-poach agreements from the cartel ban is generally not an option, as such constellations often lack indispensability, i.e. the legitimate objective can also be achieved with less restrictive regulations.

The principles established by the ECJ can also be found in the Commission's Competition policy brief and will therefore also be the benchmark in future decision-making practice outside of sports antitrust cases, as the recent fine decision against Delivery Hero and Glovo shows.

6. Conclusion

With the two ECJ rulings and the Commission decision in the Delivery Hero / Glovo case, the topic of labour antitrust law is now also gaining momentum in Europe. Further decisions in this area can be expected in the future. As the Delivery Hero / Glovo case shows, no-poach agreements are penalised with high fines.

Companies must raise their awareness of the fact that HR is also an area sensitive to antitrust law and expand their compliance accordingly. In view of the tense situation in the competition for skilled labour, companies must also keep this issue in mind, particularly in the case of bilateral agreements.