Following up on an earlier blog post outlining the United States Federal Trade Commission’s (“FTC”) increased regulatory action against non-compete agreements in employment contracts,[1] a view across the pond reveals that European competition authorities follow these developments with interest – the prospect of groundbreaking new developments is more limited, though.
When asked about the FTC’s proposals, Margrethe Vestager, Executive Vice President of the European Commission and Commissioner for Competition, recently lauded the envisaged steps as “impressive”.[2] She noted, though, that given the structural differences between the US and European labor markets, cases investigated at national level had been rare and small so far, but pledged to act swiftly if her authority encountered such clauses.[3] Her remarks build upon a speech delivered in October 2021, when she announced a “new era of cartel enforcement”, widening the enforcement focus to buyer cartels, including no-poach agreements. She cited downward pressure on wages and decreased innovation as risks linked to no-poach agreements.[4]
Should companies active in Europe now expect as well diminished room for maneuver when it comes to preventing employees from switching sides and potentially taking valuable know-how with them? The answer is more nuanced.
First, it is important to note that national legislation curbing (post-term) non-compete clauses in employment agreements is nothing new in Europe, but has been in existence for a long time. While none of these laws outright bans non-compete clauses, each stipulates strict conditions for their validity. Germany’s Commerce Code already provided for a 3-year limit at the time it was adopted in 1897and introduced a right to compensation as early as 1914.[5] Italy’s Civil Code likewise foresees time limits and a right to compensation since its adoption in 1942.[6] In France, absent explicit statutory provisions on the matter, the courts have been refining the conditions for their lawful use ever since a seminal judgment in 1992.[7]
Notwithstanding these existing legal rail guards in the area of employment law, competition watchdogs of EU Member States do seem to have grown an appetite to tackle the issue as well. However, the focus of European enforcement action has so far been on agreements between companies not to poach each other’s employees rather than on clauses included in individual employment contracts. This is a logical consequence of Art. 101 TFEU, the EU’s core provision prohibiting anti-competitive agreements, only applying to undertakings, which usually excludes employees from its scope.[8] For that reason, individual employment agreements infringing relevant labor laws are in most circumstances subject to private enforcement only.
Nonetheless, recent cases highlight the increased enforcement action against no-poach agreements between employers on the basis of competition law: On January 6th, 2023 it was revealed that the French Directorate-General for Competition, Consumer Affairs and Fraud Control of the French government (DGCCRF) imposed a fine in the amount of € 148,600 on three companies for having agreed in the context of merger to non-compete and no-poach arrangements which the authority deemed to go beyond what was necessary.[9] While only modest in its impact, the President of the French competition authority later confirmed that there were more such cases under investigation, even though they were likewise not high-profile.[10] In December 2022, the Lithuanian competition authority sanctioned a number of real estate agencies for agreeing not to poach their respective customers and employees with fines totaling almost € 1 million.[11] A more spectacular case was decided in April 2022, when the Portuguese competition authority issued fines ranging up to more than € 4 million individually against 31 professional soccer clubs for having agreed not to recruit players that had unilaterally terminated their contracts.[12]
It follows that the cases investigated in Europe have so far been rather low-profile and limited in number. Given the ongoing war for talent in certain industries such as IT, the issue will nevertheless most likely gain traction, and attract more attention from competition watchdogs in the same way that it already has in the U.S. companies active in Europe intending to deter their staff from moving to competitors should carefully assess compliance with national employment legislation and take a cautious approach when considering no-poach agreements with business partners.
FOOTNOTES
[1] Sheppard Mullin Antitrust Law Blog, FTC Seeks to Ban Noncompete Agreements in Employment Contracts, January 6th, 2023, https://www.antitrustlawblog.com/2023/01/articles/ftc/ftc-seeks-to-ban-noncompete-agreements/.
[2] MLex,, Labor-market curbs on Vestager’s radar but cases remain rare in Europe, February 1st, 2023, https://content.mlex.com/#/content/1446404.
[3] Ibid.
[4] European Commission, Speech by EVP M. Vestager at the Italian Antitrust Association Annual Conference - "A new era of cartel enforcement", October 21st, 2021, https://ec.europa.eu/commission/commissioners/2019-2024/vestager/announcements/speech-evp-m-vestager-italian-antitrust-association-annual-conference-new-era-cartel-enforcement_en.
[5] Sections 74 et seqq, German Commerce Code (Handelsgesetzbuch).
[6] Article 2125 Italian Civil Code (Codice civile).
[7] Cour de cassation – Chambre sociale, judgment of May 14th,1992 - n° 89-45.300.
[8] Opinion of Advocate-General Jacobs of January, 28th 1999, Case C-67/96 – Albany International v Stichting Bedrijfspensioenfonds, EU:C:1999:28, paras 209-217.
[9] DGCCRF, Communication relative aux pratiques anticoncurrentielles relevées dans le secteur du recyclage de métaux non-ferreux, January 6th, 2023, https://www.economie.gouv.fr/files/files/directions_services/dgccrf/concurrence/pac/Transaction_injonction/2023/Communication-TI-recyclage-metaux-non-ferreux.pdf?v=1673018415.
[10] Remarks made on the Keystone Conference “Antitrust, Regulation & the Political Economy”, Brussels, March 2nd, 2023, https://www.youtube.com/watch?v=O6wBBOVnsQs, minute 59:00 onwards.
[11] Competition Council of the Republic of Lithuania, Decision of December 12th, 2022.
[12] Autoridade da Concorrência, Decision of April 29th, 2022, Case No. PRC/2020/1.