Competition Law Compliance in Talent Wars

judge with gavel in hand

by Kate McKenna, Partner in the EU, Competition and Regulatory Law Group, Matheson LLP

This article summarises the competition law reasons why companies operating in Ireland must avoid so called ‘no-poach agreements’ (ie, agreements between employers not to hire each other’s employees), in particular given the increasing global competition law enforcement focus on these agreements as companies have found it hard to retain staff in buoyant labour market conditions.

No-poach agreements are prohibited by competition laws globally and have recently been identified as a priority area for regulatory enforcement by many regulators.  For example. the European Commission announced a “new era of cartel enforcement” in October 2021 expanding cartel enforcement to the labour markets including a new focus on no-poach and wage-setting agreements.  This announcement followed a series of prosecutions of anti-competitive labour market agreements in other countries such as the US, Mexico, Brazil, Hungary, Lithuania, Poland and Portugal.

In Ireland, no-poach agreements may fall under the competition law prohibition on agreements that have as their object or effect the prevention, restriction or distortion of competition, under Section 4(1) of the Competition Act 2002 (as amended) (the “Competition Act“).  Many Irish companies are seeking to raise awareness that this practice is illegal and the seriousness of the potential sanctions, in particular in light of the Competition (Amendment) Act 2022 giving Irish competition regulators new fining powers.

Advert

On identifying a no-poach agreement in breach of Section 4(1) of the Competition Act, the Irish competition regulators will be able to impose administrative sanctions and / or initiate criminal prosecution:

  • Civil fines include periodic penalty payments as well as more significant financial sanctions with maximum fines of the greater of €10 million or up to 10% of turnover of the undertaking.
  • Criminal sanctions include fines of the greater of €50 million or 20% of turnover of the undertaking.  Individuals may also be criminally prosecuted and the Competition Act.

In light of the serious nature of the possible sanctions, in particular criminal sanctions, companies should be aware that efforts of individuals to retain employees have the potential to infringe competition laws.

In addition, care should be taken in using non-solicitation obligations on departing employees as an attempt to stop new employers ‘raiding for talent’.  While non-solicitation obligations can be lawfully used to prohibit departing employees from using confidential information acquired as an employee to help their new employer recruit, care must be taken to ensure that the obligation complies with laws on restraint of trade and takes account of the Irish case law which has tested such clauses for compliance.

While competition regulators in Ireland have not yet investigated no-poach agreements, it is expected that there will an uptake in Irish competition investigation and that ‘no-poach agreements’ will come under the spotlight in the coming years due to the new powers under the Competition (Amendment) Act 2022.

About the author

Kate is a partner in the EU, Competition and Regulatory Law Group at Matheson.  Kate’s EU competition practice spans the areas of merger control, behavioural competition issues (including abuse of dominance, cartels and other restrictive arrangements), State aid, sectoral regulation and public procurement. As part of Kate’s regulatory practice, she advises clients on compliance with telecommunications, broadcasting and postal regulation as well as representing life sciences companies on regulatory and pricing matters arising during the life cycle of medicinal products.