No-poach agreements in Bulgaria: spotlight on the EU Commission's new restrictive approach

In the beginning of May 2024, the European Commission issued a policy brief on "Antitrust in Labour Markets". The Commission set out a new approach to wage-fixing and no-poach agreements, stating that they are likely to infringe Article 101 TFEU by object.

Background

The Commission has outlined its view that in recent years, labour market agreements have become a priority not only for itself, but for various other competition authorities worldwide and in the EU. To this extent, it states that the policy brief should serve as an outline albeit the lack of a specific decision adopted by itself on self-standing labour market agreements) on how such labour market agreements should be approached from an EU competition law perspective.

The Commission defines the agreements in question as follows:

-        Wage-fixing agreements: agreements where employers agree to fix wages or other types of compensation or benefits.

-        No-poach agreements: agreements where employers agree not to "steal" employees from each other, with a distinction between: (a) no-hire agreements, where employers agree not to hire employees of other parties actively and/or passively, and (b) non-solicit agreements, where employers only agree not to actively approach other employers’ employees with job opportunities.

The Commission argues that wage-fixing agreements would lead to lower wages and decreased opportunities ("reduced future job prospects") for employees. As for no-poach agreements, the Commission believes that they are "likely" to have negative effects on employee compensation, firm productivity, and innovation.

Restrictions of competition by object

Restrictions of competition "by object" are those that reveal a sufficient degree of harm to competition so that their effects need not be examined. The Commission holds that both wage-fixing agreements and no-poach agreements fall within the categories referred in Article 101 TFEU, as purchase price fixing and supply market sharing, respectively. It considers arguments that such agreements are necessary to protect a company's interest in investing in its employees, and to protect non-patent IP rights, to be insufficient justification for them to not qualify as restrictions by object.

In the Commission's view, these kinds of agreements are akin to buyers' cartels. The legitimate objectives they may pursue are not sufficient to negate its determination that they are restrictions by object. Furthermore, the Commission argues that there are other means to achieve the same goals, such as non-disclosure agreements, obligations to stay with an employer for a minimum amount of time, repayment of proportionate training costs, gardening leave, and non-compete clauses. The Commission goes even further and states that the undertakings in question do not have to be competitors in any product market for the conclusion of a wage-fixing or no-poach agreement to be considered a restriction of competition by object. Last but not least, the Commission doubts that there are "possible pro-competitive effects" to justify the existence of such agreements. While it does not offer any support for this position in respect of wage-fixing agreements, it states that "net efficiencies are at best uncertain" in the case of no-poach agreements.

Justifications – wage-fixing and no-poach agreements as ancillary restraints

The Commission has provided a high-level analysis on whether or not wage-fixing and no-poach agreements can qualify as ancillary restraints. On the basis of its existing guidelines, it outlines the four cumulative conditions that must be in place for this to happen: (i) there must be a main non-restrictive transaction; (ii) the restraint must be directly related to that transaction, i.e. subordinate to its implementation and inseparably linked to it; (iii) the restraint must be objectively necessary for the main transaction’s implementation; (iv) the restraint must be proportionate to the main transaction, meaning that there should be no less restrictive means to allow that transaction to take place.

In this context, the Commission has doubled down on its position and has argued, for example, that if undertakings claim that a no-poach agreement is necessary for them to enter into a transaction, they must demonstrate that (a) there are no less restrictive means of ensuring the existence of the same relationship (e.g. non-disclosure or other confidentiality agreements, possible obligations on employees to reimburse proportionate training costs, non-compete clauses compliant with national labour law, gardening leave, etc.), and (b) the scope of the clause does not cover all employees, but is strictly limited to the employees needed for the specific relationship, and only for a justifiable duration and an adequately limited territorial scope.

Practical approach in Bulgaria

The Commission’s position is bound to require undertakings from various sectors to take action. Although it is clear that the approach needs to be verified by the European Courts, there are certain steps that undertakings operating in Bulgaria must take with respect to no-poach agreements (when they are ancillary to the main transaction):

·       specifying a limited geographic reach, based on the main transaction in question;

·       covering specific employees related to the relationship, and not the whole workforce;

·       limiting the duration to the period of the relationship (while the Commission seems to support only this timeframe, it might be reasonable to argue that an appropriate short-to-medium period afterwards might be justifiable as well);

·       providing safeguards during the time of employment, such as non-disclosure agreements and gardening leave.

The other measures proposed by the Commission can be interpreted from a Bulgarian perspective as follows:

·       The argument that employees can be required to reimburse employers for training costs seems far-fetched in Bulgaria, as under general labour rules, employers are required to maintain and increase the professional qualifications of their employees. Such a scenario seems plausible only in cases where a separate civil agreement to raise an employee's qualifications and pre-qualifications is signed. However, such agreements are not very common in the market, and generally do not cover ordinary training and courses provided to employees as part of their employment.

·       The Commission holds that post-term non-compete agreements are generally outside the scope of EU competition law, as they are not agreements between undertakings, but between an employee and an undertaking. In Bulgaria, however, it is settled case law that such agreements are null and void. This begs the question if no-poach agreements can be deemed to be compliant with competition law in Bulgaria, since the main alternative suggested by the Commission is not available – not only if they fulfil the criteria for an ancillary restraint, but if an argument can be made for a stand-alone agreement.