Press Release 16/2021

The Competition Authority has published the final version of the Report and Best Practices Guide on anticompetitive agreements in the labor market.

In the current context, in which promoting economic recovery and employment is a priority and in which citizens should not be deprived of the opportunities that an open and competitive labor market can offer them, compliance with competition law contributes to that goal.

The AdC thus contributes to the promotion of a labor market in which employers adopt an independent and competitive behavior, contributing to an efficient allocation of workers, in favor of efficiency and innovation. Both are even more essential in a context of economic recovery.

It should be noted that contributing to a fast and resilient economic recovery is among the priorities of the AdC's competition policy in 2021. To this end, it published a set of principles and recommendations last June.

Horizontal agreements regarding no-poach and wage fixing may infringe the Competition Act and, if applicable, the TFEU by limiting the individual freedom of firms to define their strategic commercial conditions (e.g. hiring and/or setting wage conditions) and may be responsible for negative effects on workers and consumers.

Public consultation identifies concerns

The public consultation on the now finalized report ran from April 27 to June 9, 2021. The Public Consultation Report and the contributions to it are publicly available.

The AdC received contributions from social partners, such as the Confederation of Commerce and Services of Portugal (CCP), the Business Confederation of Portugal (CIP) and the Confederação Geral dos Trabalhadores  (CGTP-IN), as well as from other entities, including the IUS OMNIBUS Association, the Associação da Hotelaria, Restauração e Similares de Portugal (AHRESP), Randstad Portugal and Lusitania - Insurance Company.

Background

The interactions between competition and the labor market have occupied a prominent place in the recent global discussion on competition policy.

Alongside this debate, empirical studies have pointed to a downward trend in the proportion of the labor factor in the Gross Domestic Product (GDP) and to an increase in the degree of concentration in some industries. The strengthening of the bargaining power of employers vis-à-vis workers has been pointed out as one of the possible explanations for this trend.

On the other hand, companies sometimes establish agreements among themselves to coordinate their strategies in the labor market, such as no-poach agreements or wage-fixing agreements, which may infringe the competition law.

Recently, on April 13, the AdC issued Statements of Objections for a no-poach agreement, regarding the Portuguese Professional Football League (LPFP) and 31 football clubs participating in the 2019/2020 edition of the First and Second Professional Football Leagues.

 Anticompetitive agreements in the labor market

Horizontal agreements regarding no-poach and wage fixing may arise in any sector. These agreements are likely to infringe the Competition Act and, if applicable, the Treaty on the Functioning of the European Union (TFEU, Article 101).

These agreements limit the individual freedom of firms to define their strategic commercial conditions (e.g. hiring and/or setting wage conditions) and may be responsible for adverse effects on the market by introducing inefficiency, limiting production, reducing innovation, discouraging investment in human capital, among others.

Agreements between employers to fix wages and/or other forms of remuneration also create harm for workers and can result in negative effects on competition. On the one hand, these agreements result in lower remuneration than workers would receive in a full competition scenario between firms. On the other hand, they can affect the uncertainty associated with competitive play, and may facilitate other coordinated behavior.

• Non-solicitation and/or non-hiring agreements (no-poach agreements): horizontal agreements by which firms mutually agree not to make unsolicited offers or hire workers without the prior consent of the other firms with whom they have established the agreement.
• Wage-fixing agreements: horizontal agreements by which companies harmonize or standardize the compensation and/or other benefits of their employees.

A Guide to Good Practices in Business

The AdC has issued, alongside the Issues Paper, a set of best practices for firms. In parallel to adopting such practices, firms may report to the AdC when they are aware of evidence that may constitute an anticompetitive agreement in the labor market, either through the Complaints Portal or by accessing the Leniency Program (i.e. a legal regime of exemption or reduction of fines in proceedings for breach of competition rules).

Thus, firms should internally follow the following best practices:

• Eliminate agreements and other practices with competitors, regarding recruitment that may hinder competition. For example, and without prejudice of a case-by-case assessment:
  • Companies should not enter into agreements with other firms not to poach or hire each other’s employees.
  • Companies should not exchange commercially strategic and sensitive information with each other about remuneration and recruitment of workers. Depending on the type, timeliness, level of aggregation, market characteristics and the way in which information is shared and disseminated, the exchange of information may be anti-competitive.
• Outside legitimate contexts of social dialogues and/or collective bargaining agreements, as social partners:
  • Companies should not enter into agreements with other firms with regard to salaries or other forms of compensation of their employees.
  • Companies should not participate in meetings, such as business association meetings, where other companies are present, and in which they discuss wage-fixing and other forms of compensation related to each other’s employees.
• The scope of the expression agreement includes “non-aggression pact”, “gentlemen agreements”, “no-poach agreements”, “wage-fixing agreements”.
• Raise workers’ awareness, particularly amongst human resources personnel, to competition law, for example, through internal training:
  • Raising awereness to a set of agreements and other practices such as those described above, that may infringe the Portuguese Competition Act, and if applicable, the Treaty on the Functioning of the European Union (TFFEU), and cause harm to employees and competition.
  • Promote, internally, the adoption of the current best practices and disseminate them amongst all employees, spanning through all hierarchical levels.
• Report to the AdC any indicia of a potential practice restrictive of competition.