In recent years, competition in labour markets has garnered significant attention from competition authorities worldwide. The proliferation of no-poach agreements between competing companies and their negative impact on competition have prompted numerous competition authorities to intensify their enforcement[1] and policy[2] initiatives against these practices. Most recently, the FTC prohibited agreements between employers and their workers preventing the latter from seeking or accepting employment elsewhere (non-compete agreements). According to the FTC, non-compete agreements are an unfair method of competition, violating Section 5 of the FTC Act.[3] Within the EU, the EC published a Policy Brief on Antitrust in the Labour Market summarising the stance of the EU enforcer regarding no-poach and wage-fixing agreements concluded between employers. The EC regards these agreements as a restriction of competition by object prohibited under Article 101 TFEU.[4]

No-poach agreements involve a form of market allocation between competitors, which harms competition in the labour market. They also can depress wages and prevent an efficient allocation of employees, which in turn may reduce productivity, quality and innovation. Therefore, no-poach agreements are typically contrary to competition law.

However, no-poach commitments may be part of a broader legitimate collaboration agreement that does not raise competition law concerns. A no-poach agreement that is ancillary to such a collaboration will typically be in compliance with competition laws. 

In this article we will explore the concept of ancillary no-poach agreements and identify the circumstances under which no-poach agreements that are related to a broader legitimate collaboration, can be viewed as ancillary and thus compatible with EU Competition law. 

The notion of “no-poach agreement”

In no-poach agreements companies who are competitors in the labour market pledge not to actively approach each other’s employees with an employment offer (no-solicitation) or not to offer employment to each other’s employees (no-hiring).[5]

Competition authorities have drawn a distinction between “naked” and “non-naked” no-poach agreements. The first category encompasses no-poach agreements concluded between unrelated competing employers, while the second refers to no-poach agreements which are part of a broader collaboration between companies competing in the labour market.[6]

Effects of no-poach agreements on competition

No-poach agreements (whether “naked” or “non-naked”) potentially restrict competition in the labour market by artificially eliminating competition among employers for professionals with specific qualifications. This elimination of competition typically results in the reduction of wages beneath their market value since they prevent the parties from poaching workers from the other party by offering them a higher salary. Consequently, the workers’ current employer has no incentive to raise their wages to retain them.[7] No-poach agreements also result in a limitation of workers’ mobility,[8] which may result in an inefficient allocation of employees as it hinders their opportunities to advance to more qualified job positions.[9]

The harmful effects on competition of these agreements could also extend to downstream markets. The restriction on labour supply can lead to reduced output and, subsequently, higher prices. Furthermore, the inefficient distribution of labour may hinder innovation and harm the quality of output. Consequently, no-poach agreements could also be detrimental to consumers.[10]

Ancillary no-poach agreements

While ‘non-naked’ no-poach agreements are typically viewed as violating competition law, competition authorities consider these agreements as legitimate when they are ancillary to a collaboration which has neutral or positive effects on competition.[11]

Under EU Competition law, a no-poach agreement between competitors in the labour market qualifies as an ancillary restraint only if it is (i) directly related to a legitimate collaboration agreement, (ii) objectively necessary to the implementation of the broader collaboration agreement; and (iii) proportionate to the objectives it pursues.[12]

The subsequent sections will analyse each of the aforementioned criteria to provide guidance on the conditions a “non-naked” no-poach agreement must fulfil to qualify as an ancillary restraint under EU competition law.

1.Direct link 

According to settled case law of the Court of Justice of the European Union (CJEU), a restriction is considered directly related to a main agreement (e.g. an R&D or franchise agreement) if it is subordinate to the implementation of that agreement and is inseparably linked to it.[13] The main agreement must be compliant with Article 101(1) TFEU.[14]

A no-poach agreement will be viewed as directly linked to the main agreement if it would not exist if the parties had not entered into the main agreement.

2. Objective necessity

A no-poach arrangement will only be deemed necessary for the implementation of the main agreement if, based on objective factors, it can be concluded that it would not be possible to implement the main relationship without the restriction. The fact that it is merely more difficult to implement the main agreement without the no-poach clause or less profitable does not make the restriction objectively necessary and thus ancillary.[15]

No-poach agreements will qualify as objectively necessary for the implementation of the main relationship only if the parties would not have entered into the main relationship without the no-poach agreement. 

There are situations where companies would not be prepared to enter in a cooperation agreement without a no-poach clause if they have objective reasons to believe that the cooperation partner may seek to recruit skilled employees. Such a loss may result in (i) the loss of their investment in the training of these employees (ii) the loss of know-how acquired by their employees, (iii) the compromise of their non-patented IP rights and business secrets, and possibly even (iv) the inability to fulfil their obligations under the collaboration agreement due to a lack of skilled staff. Under such circumstances, a no-poach agreement is likely to qualify as objectively necessary and thus ancillary.[16] 

A case-by-case analysis of each situation, under both EU and relevant national laws, is essential to determine whether the no-poach agreement qualifies as objectively necessary in that specific instance.

3. Proportionality

Restrictions that are directly related and objectively necessary for the implementation of a legitimate collaboration agreement must also be proportionate, i.e., there is not a less competition-restrictive solution that achieves the same objective.[17] To determine whether this is the case, it is necessary to analyse both (i) whether there are alternative means that allow to achieve the same objective and (ii) whether the scope of the restriction is proportionate to the purpose, geographical reach and duration of the main collaboration agreement.[18]

A no-poach agreement will be viewed as proportionate to the objectives it pursues if:

1. The no-poach agreement is the least restrictive means to achieve the goal; and
2. The restriction does not go beyond the purpose, geographical scope and duration of the main agreement.

If the employer could achieve the same objectives (i.e., safeguarding their investments in training, protecting the employees’ know-how, securing non-protected IP and business secrets, and/or ensuring the ability to fulfil the obligations under the main agreement) by entering into less restrictive agreements, then the no-poach agreement would not be considered proportionate. Potential less restrictive agreements can include (i) a compensation for unexploited training investments, (ii) a reasonable notice period to facilitate the handover of a leaving employee’s know-how, (iii) non-disclosure agreements to protect non-patented IP rights and business secrets, or (iv) including a non-compete clause in the employment agreement of the employees who will be involved in the cooperation.[19] Whether such measures can effectively achieve the same result as a non-poach agreement will vary from case to case. For instance, it may not be possible to impose non-compete obligations on the employees in question, either because of specific requirements under national labour law or simply because the employees may not agree to have such a restriction included in their employment agreement. 

Moreover, the scope of the no-poach agreement should be limited to highly skilled workers who are directly involved in the cooperation.[20] For example, if the parties are engaged in a R&D agreement, the no-poach clause should only apply to key engineers who are working on the product that is currently under research and development.

In addition, no-poach agreements should not extend beyond the geographic area in which the main collaboration is being implemented.[21] For example, if the parties have entered into a franchise agreement to open a restaurant chain in Paris, the no-poach agreement should be confined to the Parisian market.

Finally, the no-poach agreement should be applicable only for the duration of the main agreement and under no circumstances should it extend beyond a period of three years following the termination of the main agreement.[22]

Conclusion

Even though no-poach agreements are typically harmful to competition in both labour and downstream markets, they can be compatible with competition law if they are ancillary to a broader, legitimate collaboration that is neutral or beneficial to competition. 

As is apparent from the above, each no-poach agreement requires a detailed examination to determine its compliance with Article 101(1) TFEU.

If you need more information or further guidance in this area, please contact Anne Federle and Paula González.

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[1] See, inter alia, Spanish Comisión Nacional de los Mercados y la Competencia, Decision of 31 July 2010, Case S/0120/08 Transitarios, available here; Turkish Rekabet Kurumu, Decision of 26 May 2011, Case 11-32/650-201; available here; Portuguese Autoridade da Concorrência, Decision of 28 April 2022, Case PRC/2020/1, available here; US Court of Appeals, 9^th Circuit, Opinion of 19 August 2021, Aya Healthcare Servs., Inc. v. AMN Healthcare, Inc., No. 20-55679, available here; Catalan Autoritat Catalana de la Competència, Decision of 11 July 2023, Case 109/2021, available here; US Court of Appeals, 7^th Circuit, Opinion of 25 August 2023, Case Deslandes v. McDonald’s USA, LLC, Nos. 22-2333 & 22-334, available here; French Autorité de la Concurrence (2023). Press release: The General Rapporteur of the Autorité de la concurrence announces that several companies from the engineering, technology consulting and IT services sectors were notified of statements of objections regarding anticompetitive agreements in job markets, available here; Chinese State Administration for Market Regulation (2023). Press release: The State Administration for Market Regulation interviewed four pig breeding enterprises to promote the reasonable, smooth and orderly flow of labor elements and the healthy and sustainable development of industry norms, available here; UK Competition and Markets Authority (2023). Press release: CMA launches investigation into fragrances and fragrance ingredients, available here; and European Commission (2023). Press release: Antitrust: Commission carries out unannounced inspections in the online food delivery sector, available here, 

[2] See, inter alia, US DOJ and FTC (2016). Antitrust Guidance for Human Resource Professionals, available here; Dutch Authority for Consumers and Markets (2019). New guidelines for cooperation between businesses, available here; Portuguese Autoridade da Concorrência (2021). Best Practices in Preventing Anticompetitive Agreements in Labor Markets, available here; and Portuguese Autoridade da Concorrência (2021). Labor Market Agreements and Competition policy, available here; Canadian Competition Bureau (2023). Enforcement Guidelines on wage-fixing and no poaching agreements, available here; Konkurranse Tilsynet, Konkurrensverket, Konkurrence- Og Forbrugerstyrelsen, Samkeppniseftirlitið, Finnish Competition and Consumer Authority (2024). Competition and Labour Markets. Joint Nordic Report, available here; and European Commission (2024). Competition Policy Brief: Antitrust in Labour Markets, available here.

[3] US FTC (2024). Final non-complete clause rule, available here.

[4] European Commission (2024). Competition Policy Brief: Antitrust in Labour Markets, available here.

[5] E. Posner and S. Roberts (2023). “No-poach antitrust litigation in the United States.” In Concurrences N° 4-2023, On-Topic: No-poach agreements – Closing the enforcement gap, pp. 10-14; and European Commission (2024). Competition Policy Brief: Antitrust in Labour Markets, available here, p. 2.

[6] US DOJ and FTC (2016). Antitrust Guidance for Human Resource Professionals, available here, p. 8; and Canadian Competition Bureau (2023). Enforcement Guidelines on wage-fixing and no poaching agreements, available here; Section 1.1.

[7] R.T. Davis (2018). Talent Can't Be Allocated: a Labor Economics Justification for No-Poaching Agreement Criminality in Antitrust Regulation. Brooklyn Journal of Corporate, Financial & Commercial Law 12(2), pp. 279-310, p. 305; and R. Tremolada (2019). Anti-competitive restraints in labour markets - antitrust enforcement against no-poaching agreements. European Competition Law Review, 40(10), pp. 451-463, p. 454. 

[8] R.T. Davis (2018). Talent Can't Be Allocated: a Labor Economics Justification for No-Poaching Agreement Criminality in Antitrust Regulation. Brooklyn Journal of Corporate, Financial & Commercial Law 12(2), pp. 279-310, p. 306.

[9] A.S. Rodrigues (2023). “Introduction.” In Concurrences N° 4-2023, On-Topic: No-poach agreements – Closing the enforcement gap, pp. 2-4, p. 4.

[10] Portuguese Autoridade da Concorrência (2021). Labor Market Agreements and Competition policy, available here, p. 11; and A.S. Rodrigues (2023). “Introduction.” In Concurrences N° 4-2023, On-Topic: No-poach agreements – Closing the enforcement gap, pp. 2-4, p. 4.

[11] See, inter alia, US District Court, District of Columbia, Final Judgment of 3 June 2011, Case United States v. Lucasfilm Ltd, No. 1:10-cv-02220, available here, pp. 4-6; Canadian Competition Bureau (2023). Enforcement Guidelines on wage-fixing and no poaching agreements, available here; Section 3.1; and European Commission (2024). Competition Policy Brief: Antitrust in Labour Markets, available here, p. 6.

[12] European Commission (2004). Guidelines on the application of Article 81 (3) of the Treaty, OJ C 101, 27.4.2004, p. 97–118, para. 29.

[13] European Commission (2004). Guidelines on the application of Article 81 (3) of the Treaty, OJ C 101, 27.4.2004, p. 97–118, para. 29.

[14] See, inter alia, Judgment of the Court of Justice, of 26 October 2023, Case C-331/21 EDP - Energias de Portugal and Others, ECLI:EU:C:2023:812, para. 88; Judgment of the Court of Justice, of 23 January 2018, Case C-179/16 F. Hoffmann-La Roche and Others, ECLI:EU:C:2018:25, para. 69; and Judgment of the Court of Justice, of 11 September 2014, Case C-382/12 P MasterCard and Others v Commission, ECLI:EU:C:2014:2201, para. 89.

[15] See, inter alia, Judgment of the Court of Justice, of 26 October 2023, Case C-331/21 EDP - Energias de Portugal and Others, ECLI:EU:C:2023:812, para. 90; Judgment of the Court of Justice, of 23 January 2018, Case C-179/16 F. Hoffmann-La Roche and Others, ECLI:EU:C:2018:25, para. 71; and Judgment of the Court of Justice, of 11 September 2014, Case C-382/12 P MasterCard and Others v Commission, ECLI:EU:C:2014:2201, para. 91.

[16] OECD (2019). Competition Policy for Labour Markets – Note by Herbert Hovenkamp, available here, p. 9; and European Commission (2024). Competition Policy Brief: Antitrust in Labour Markets, available here, p. 6.

[17] Judgment of the Court of Justice, of 26 October 2023, Case C-331/21 EDP - Energias de Portugal and Others, ECLI:EU:C:2023:812, para. 93; and Judgment of the Court of Justice, of 11 September 2014, Case C-382/12 P MasterCard and Others v Commission, ECLI:EU:C:2014:2201, para. 111.

[18] Judgment of the Court of Justice, of 26 October 2023, Case C-331/21 EDP - Energias de Portugal and Others, ECLI:EU:C:2023:812, para. 93.

[19] OECD (2019). Competition Policy for Labour Markets – Note by Herbert Hovenkamp, available here, p. 9; and European Commission (2024). Competition Policy Brief: Antitrust in Labour Markets, available here, p. 6.

[20] European Commission (2024). Competition Policy Brief: Antitrust in Labour Markets, available here, p. 6, and, by analogy, European Commission (2005). Notice on restrictions directly related and necessary to concentration, OJ C 56, 5.3.2005, p. 24–31, paras. 18, 23, 36 and 38; and Portuguese Autoridade da Concorrência (2021). Labor Market Agreements and Competition policy, available here, p. 36.

[21] European Commission (2024). Competition Policy Brief: Antitrust in Labour Markets, available here, p. 6, and, by analogy, European Commission (2005). Notice on restrictions directly related and necessary to concentration, OJ C 56, 5.3.2005, p. 24–31, paras. 22 and 37; and Portuguese Autoridade da Concorrência (2021). Labor Market Agreements and Competition policy, available here, p. 36.

[22] European Commission (2024). Competition Policy Brief: Antitrust in Labour Markets, available here, p. 6, and, by analogy, European Commission (2005). Notice on restrictions directly related and necessary to concentration, OJ C 56, 5.3.2005, p. 24–31, para. 20; and Portuguese Autoridade da Concorrência (2021). Labor Market Agreements and Competition policy, available here, p. 36.