Navigating no-poach agreements: A global perspective

No-poach agreements are promises between or among employers not to hire or recruit each other’s employees. Such agreements not to compete for those employees’ labor have the potential to restrict competition in the labor market, resulting in less competitive remuneration or employment terms.

For the past decade, the antitrust enforcement agencies in the US have been leading vigorous enforcement efforts against no-poach agreements among competing employers. In 2016, the US Department of Justice and the Federal Trade Commission issued a joint Antitrust Guidance for Human Resources Professional which warned that no-poach agreements could subject employers to civil and criminal actions.

In Asia, competition laws across the region contain rules against cartels and other horizontal restraints that could readily be construed to prohibit no-poach agreements, but, to date, no enforcement actions have been brought by any of the competition authorities. Thus far, only the Hong Kong Competition Commission (HKCC) and the Japan Fair Trade Commission (JFTC) have provided prospective guidance on the issue.

In the European Union, in a speech at the annual conference of the Italian Antitrust Association in October 2021, EU Commissioner Margrethe Vestager stressed the need to place more emphasis on the enforcement of competition rules against buyer cartels which, in the Commissioner’s view, are responsible for “making our economy work less efficiently.” Commissioner Vestager noted that no-poach agreements are one of those examples in which the anticompetitive effects of the agreement do not necessarily manifest as increased prices for end consumers, but rather as restrictions on innovation and workers’ mobility within the market. So far, however, all cases and investigations on no-poach agreements in the European Union have stemmed from national competition authorities (NCAs) at the member state level and have been based on assessments of both national and EU competition laws.

Hong Kong

Hong Kong’s Competition Ordinance contains three categories of prohibitions, namely (1) anti-competitive and concerted practices; (2) abuse of a substantial degree of market power; and (3) mergers and acquisitions that substantially lessen competition in Hong Kong’s telecommunications sector. The First Conduct Rule prohibits anti-competitive agreements and concerted practices by businesses, including horizontal agreements between competitors (such as cartels) and vertical agreements (such as resale price maintenance in a distribution agreement).

In April 2018, the HKCC issued an advisory bulletin on employment-related practices that give rise to competition concerns under the Competition Ordinance. The Bulletin cited no-poach agreement as an example of conduct at risk of contravening the First Conduct Rule. Along with no-poach agreement, HKCC’s examples of potentially prohibited conduct included wage-fixing agreements between employers and exchange of competitively sensitive information between employers regarding employee compensation, be it reciprocal, unilateral or through a third party. Contravention of the First Conduct Rule can result in financial penalties (up to 10% of the company’s turnover for a maximum of three years), director disqualification orders or other sanctions.

Japan

Japan’s Antimonopoly Act (AMA), administered by the JFTC, prohibits unreasonable restraints on trade (cartels), private monopolization (abuse of dominance), unfair trade practices, and mergers and acquisitions. The AMA’s prohibition on unreasonable restraints of trade applies to horizontal coordination amongst competitors at the same level of trade which eliminate or substantially restrain competition.

In February 2018, the JFTC published a report providing guidance on the application of the AMA in the human resources market and identifying competition issues that can arise in the context of hiring practices for employers. In the report, the JFTC clarified that agreements among employers regarding employment terms such as wage-fixing agreements are likely to violate the AMA because such agreements are intended to restrict competition and have a severely negative impact on competition. Such agreements among employers may not violate the AMA if they have pro-competitive effects or if they are found to be reasonable means for achieving a social or public purpose.

Singapore

Competition law in Singapore is administered and enforced by the Competition and Consumer Commission of Singapore (CCCS), a statutory body established under the Competition Act (Cap. 50B) and which operates under the purview of Singapore’s Ministry of Trade and Industry.

The Competition Act prohibits agreements, decision and concerted practices which have as their object or effect the prevention, restriction or distortion of competition within Singapore; abuse of a dominant position in any market in Singapore; and mergers and acquisitions that substantially lessen competition with any market in Singapore.

To date, the CCCS has not carried out enforcement action relating directly to the labor markets, although in 2011, it took action in relation to a cartel case relating to the fixing of monthly salaries of Indonesian foreign domestic workers by employment agencies.

Europe

Despite Commissioner Vestager’s remarks on no-poach agreements, it would be erroneous to suggest that member states’ national competition authorities (NCAs) have not already investigated, or at least attempted to investigate, these types of horizontal agreements. As of this writing in fact, at least three different NCAs (in France, Italy and Portugal) have already issued fines and statements of objection against undertakings that made use of no-poach agreements.

In France, in September 2016, the French Competition Authority (AdlC) fined a total of 37 modelling agencies, representing almost the entire relevant market’s presence in the country, a total of EUR2.3 million for having coordinated pricing, to such an extent as to leave no room for negotiation, with the additional result of impairing the models’ mobility within the French market.

Shortly after the above-mentioned decision by the AdlC, in October 2016 the Italian Competition Authority (AGCM) issued a EUR4.5 million fine against nine of the main modelling agencies, representing approximately 80% of the model management market in Italy, for having violated article 101 TFEU. The case stemmed from a leniency application that was filed before the AGCM by one of the modelling agencies in 2015 which proved the existence from 2007 to 2015 of a no-poach agreement, in the form of wage-fixing and no-hire agreements among the agencies. The underlying agreement was deemed to restrict competition by object and, as in the French case, the AGCM also fined the professional union for its role in the parties’ anticompetitive conduct.

In May 2020, the Portuguese Competition Authority (AdC) issued a statement of objection against the Portuguese Professional Football League (LPFP) for having violated Portuguese competition law over the existence of a no-poach agreement within the LPFP. The AdC found that the football league maintained a no-poach agreement whereby football clubs committed to not recruit or hire players who had made use of the situation created by the COVID-19 pandemic to unilaterally terminate their employment contracts with first and second league’s clubs.

Employment law concerns

While the focus to date has been on antitrust, there are also a number of employment law issues and trends which are relevant and could feature more heavily going forwards.

The gig economy and employee misclassification

In most APAC countries, there is an important distinction between employees and independent contractors (also known as consultants or freelancers). “Employees” generally work under the direction and control of an employer pursuant to a contract of service, whereas “independent contractors” are self-employed and have freedom over when, where and how they provide their services.

The conversation around no-poach agreements has to date centred around the non-poaching of “employees.” However, as non-traditional business models such as digital platforms continue to grow and evolve with the expansion of the digital economy, antitrust authorities will increasingly encounter cases where the distinction between employees and self-employed independent contractors or service providers will need to be considered.

For example, in 2018 the ride-hailing platforms Grab and Uber were fined in connection with the sale of Uber’s Southeast Asian business to Grab. Both platforms engage their drivers as independent contractors rather than hire them as employees.

The gig economy and industrial relations

Collective bargaining is a process in which a recognized trade union seeks to negotiate better employment terms and conditions for its employee members. In countries that have antitrust frameworks and which also recognize trade unions, it is unlikely that employees in a single firm associating for the purposes of collective bargaining will fall foul of antitrust laws because they are not considered “undertakings.” However, independent contractors who associate may in principle breach antitrust laws because they would be considered undertakings who are competitors that supply services. Singapore raised this issue in its contribution to the OECD in 2019, albeit in the context of agreements to protect salary levels rather than no-poach agreements per se.

Similarly, to the extent there is an exemption to collectively bargain on behalf of “employees,” this may not be broad enough to apply to self-employed persons or independent contractors. This is the case in Singapore, for example, where the definition of “employee” under the Industrial Relations Act only applies to a person who has entered into or works under a contract of service with an employer as opposed to a contract for service. Given this, if a trade union representing a membership of gig economy workers banded together and agreed not to poach service providers from a competing business, this could potentially fall within antitrust laws and would not be protected by the exemption that is typically extended to collective bargaining.

The great resignation and the war for talent

The Great Resignation (also known as the Big Quit or Great Reshuffle) is a recent phenomenon whereby employees are said to be resigning from their jobs en masse to pursue more rewarding opportunities. The long-term fallout of COVID-19 has meant employees are increasingly working offsite and many companies have transitioned to some form of remote or hybrid work policy. Employees are also experiencing higher levels of job dissatisfaction with increased mental fatigue, burnout and a desire to be geographically closer to family and friends or in more pleasant surroundings. The pandemic, that is, has given employees an opportunity to reconsider their careers and long-term priorities and take up roles that offer them to work more flexibly – often in other parts of the world.

The phenomenon is impacting some countries more than others. For example, India has seen large-scale resignations across many sectors of the economy, particularly in the IT sector which saw over a million resignations in 2021. Hong Kong has also recently seen a mass exodus of employees (predominantly expats) in response to the government’s quarantine and social distancing requirements, which are some of the strictest in the world. On the other hand, resignation rates in Singapore have remained consistently low throughout the pandemic, at 1.6% for the third quarter of 2021, which is below pre-COVID levels. The impact is also skewed towards Millennials and Gen Zs, who tend to prioritize flexibility over traditional concepts like compensation and title.

In countries where the Great Resignation is having the biggest impact, employers are now finding themselves in the middle of a war for talent. As a result, we are seeing an uptick in employment litigation, with employers increasingly looking to enforce the terms of non-competes and no-poach agreements in individual employment contracts. This is true even in sectors which have in the past been more relaxed about employees moving around in the labor market and to competitors, or for employers who may view individual covenants as unenforceable or not worth the time and expense of litigation. We expect this trend to continue and that employers may also turn to no-poach agreements as a further means of managing their attrition rates, without necessarily understanding the antitrust risks this would give rise to.

What’s next

Antitrust agencies are increasingly looking at no-poach agreements around the globe. We expect this trend to continue in Asia. In addition to antitrust violations, employers in the region should be aware that no-poach agreements could raise general employment law concerns. In Europe, although no cases have been opened by the EU Commission at the time of this article, Commissioner Vestager’s speech is a clear indicator that the EU Commission is likely to investigate the presence, and the effects, of such agreements within the EU as part of the DG COMP’s investigative priorities. Undertakings and operators must exercise due care in ensuring that their HR and recruitment policies in this field are compliant with EU and member states’ competition laws, given that they could otherwise face a fine of up to 10% of their overall annual turnover as well as actions for damages, brought by private parties, before the national courts.