*Sibel ÖZTÜRK, LL.M.
A. General Overview:
The labor market, also referred to as the employment market, is a structure where employees, who offer their labor, and employers, who demand this labor, interact. The wages and other employment conditions are determined based on the supply and demand power of the parties involved.[1] Human resources, which form one of the most crucial assets of businesses, play an active role in the strategic decision-making processes of enterprises and are decisive for their competitive strength.[2] However, the cost of labor is one of the primary expenses in the production process for employers.
Businesses competing in the labor market to secure labor may wish to retain their workforce and prevent their employees from being hired by competitors. Additionally, labor is a significant cost factor for enterprises, leading rival businesses to agree on "salary fixing" or "non-poaching" agreements. Through these agreements, they may reduce employee mobility between companies and suppress or lower wages, thereby eliminating competition in the labor market. Furthermore, the sharing of sensitive employee-related information or the setting of working conditions by competitors can also result in violations of competition law.
B. The Evaluation of Agreements Among Businesses in the Labor Market under Law No. 4054:
Article 4, Paragraph 2(a) of Law No. 4054 lists "determining the purchase or sale price of goods or services, along with elements such as cost, profit, and all other purchase or sale conditions" as prohibited agreements, concerted practices, or decisions of business associations. Therefore, violations in the purchasing market also fall under the scope of Law No. 4054.
It should be noted that agreements between competitors on the purchasing side are considered competition violations under U.S., EU, and Turkish competition law practices. Labor cartels serve as an example of purchasing cartels.[3]
It is clearly stated in the Competition Authority’s decision dated 02.01.2020 and numbered 20-01/3-2 regarding Container Drivers that agreements among businesses targeting the labor market fall within the scope of Law No. 4054. It was emphasized that just as competition law aims to protect free market opportunities for buyers and sellers of products, it also pursues the same goal for buyers and sellers of labor services.
Some notable points from the decision include:
*Agreements aimed at "fixing employees' wages and/or preventing poaching" constitute cartels on the purchasing side and are no different from market allocation agreements.
*There is no fundamental difference between non-poaching agreements and customer/market-sharing agreements or between wage-fixing and price-fixing agreements, other than the fact that they occur on the purchasing side rather than the selling side.
The decision also highlights that, although employers may not individually have monopsony power in the labor market, they could acquire this power through anti-competitive agreements. It was discussed how the monopsony power could harm the market. The decision referred to academic views that, in a competitive market, employees receive wages that reflect the marginal value of their labor. However, if a business with monopsony power or multiple businesses through anti-competitive agreements suppress wages, labor supply will decrease, leading to a drop in output, rising prices, and a loss of consumer welfare.
C. Agreements Restricting Competition in the Labor Market:
The main types of agreements that restrict competition in the labor market include non-poaching agreements and agreements on wage and working conditions. These agreements are discussed separately below.
1. Non-Poaching Agreements:
"Poaching" refers to a business enticing an employee of another company to leave their current position and enter into a new employment contract with them. Non-poaching agreements, as defined in the Dictionary of Competition Terms, are "agreements where one business agrees directly or indirectly not to offer employment or hire the employees of another business."[4] Such agreements represent a mutual decision by businesses not to compete over the limited labor supply.[5]
Non-poaching agreements can take various forms. While they might outright ban employee transfers between competitors, they may also establish a system where employee transfers are restricted but allowed with mutual consent. The key issue in evaluating these agreements is whether an anti-competitive element regarding the labor input has been agreed upon. Regardless of the form, such agreements should be considered non-poaching agreements in both cases.[6]
The Portuguese Competition Authority, in its report on the labor market, evaluated the potential effects of non-poaching agreements on submarkets. These include:
- The cost savings achieved through wage reductions due to increased buyer power would not be passed on to the final consumer since these are related to fixed costs.
- The wage reductions caused by non-poaching agreements would lower employee productivity in the long run. A decrease in employee mobility would disrupt the innovation-driven structure in the submarket, where ideas spread through labor movement.
- In sectors where employee mobility is critical for innovation, non-poaching agreements would lead to a decline in the quality and variety of products and services.
In this context, non-poaching agreements restrict competition in the labor market by reducing employee mobility, suppressing wages, and potentially violating competition law.[7]
Non-poaching agreements can take the form of "explicit non-poaching agreements" or "non-poaching agreements considered as ancillary restraints." They may also appear in franchise agreements through provisions prohibiting poaching.
Explicit non-poaching agreements are those between employers that are not related to a legitimate business cooperation (e.g., an acquisition agreement) and are unnecessary for such cooperation. Competition authorities typically regard explicit non-poaching agreements as per se violations (absolute, outright) without needing to demonstrate anti-competitive effects.
Ancillary restraints refer to restrictions that are necessary and directly related to achieving the goals of an agreement, even though they are not its core element.[9] In practice, non-poaching agreements can be considered ancillary restraints in mergers and joint ventures. Both the U.S. Department of Justice (DOJ), the Federal Trade Commission (FTC), and the European Commission do not view such provisions as violations.
The Turkish Competition Board, in line with Paragraph 58 of its Guide on Mergers and Acquisitions, has evaluated non-poaching provisions as ancillary restraints in many decisions related to mergers and acquisitions. However, in some decisions, where the non-poaching provisions extended beyond what was necessary for the transaction, the Board ordered the narrowing of such restrictions.[10]
In the 2020 decision of the Turkish Competition Authority regarding Container Drivers,[11] the statement: "Indeed, it is considered appropriate to approach labor market restrictions in legitimate collaborations or agreements with an effect-based evaluation" suggests that the ancillary restraint doctrine may also be applicable to non-solicitation agreements outside of merger transactions.[12]
Regarding franchise agreements, it should be noted that non-solicitation agreements between multiple franchisees could be subject to the per se violation rule under classic horizontal non-solicitation agreements. However, when assessing such agreements between a franchisor and a franchisee, it must be considered whether the franchisor and franchisee are competing in the same labor market. If they are competitors, the agreement could be treated as a horizontal agreement and subject to the per se rule. Otherwise, the relationship may be evaluated as vertical, and non-solicitation provisions could be considered as ancillary restraints within the scope of legitimate cooperation.[13]
The following assessment from the Competition Authority's decision dated 07.02.2019 and numbered 19-06/64-27 regarding Bfit is of importance:
"... In this regard, it must first be stated that, in the aforementioned U.S. cases and particularly in the Jimmy John’s decision, which included a restriction within a franchise system, the agreement between undertakings completely eliminated the possibility of employees transferring. In the Jimmy John’s decision, it was noted that franchisees had agreed, through the franchise agreement, not to offer employment or hire any person working for or who had worked for the franchisor, its affiliates, or other franchisees within the past 12 months. However, in the present case, the relevant clause in the franchise agreement does not entirely prohibit franchisees from hiring individuals employed or previously employed by the franchisor or other franchisees or competitors but requires the prior written approval of the franchisor. Moreover, it should be noted that information and documents in the case file show that employee transfers among franchisees have occurred, indicating that the relevant clause does not restrict personnel transfers.
Furthermore, franchisors may impose restrictions through franchise agreements on where franchisees can source products, with the aim of ensuring uniformity in the franchise system, maintaining a certain quality standard of the products sold, and protecting the brand image. While such restrictions may be considered violations of Article 4 of Law No. 4054, the Authority has granted exemptions in many cases under Article 5. The clause under review in the present case bears similarities to these restrictions and could therefore be assessed similarly. Given that the service provided within the franchise system in question is primarily delivered directly by employees or trainers, it is reasonable to consider that the franchisor might seek to establish a specific and uniform quality standard for employees."
In light of these assessments, the Bfit decision[14] suggests that the appropriate evaluation standard for non-solicitation agreements in franchise agreements is “effect analysis”.[15]
2. Agreements on Wage and Working Condition Determination
Agreements on wage and working condition determination occur when employers, who are competitors in the same labor market, set wages, financial rights, or working conditions for employees at a certain level or within a certain range. Sharing sensitive information about employees may lead to similar wage structures among competitors, resulting in effects similar to those of wage determination agreements, and thus may constitute a competition violation in terms of either purpose or effect.[16]
The following findings from the Competition Authority's first decision on the matter, dated 28.07.2005 and numbered 05-49/710-195, are crucial:
"... According to Article 4(a) of Law No. 4054, the setting of the purchase or sale price of goods or services, the factors that make up the price such as cost and profit, and all terms of purchase or sale is prohibited. In this context, if television series producers determine actor salaries through agreements, this would clearly be aimed at restricting competition by fixing purchase prices as mentioned in the article, and if the agreed-upon principles are applied, competition in the market would evidently be hindered."
However, in this particular decision, no concrete evidence of an agreement was found, and there were no indications of a competition violation in practice, so no investigation was initiated. Instead, it was concluded that a written opinion should be sent to the undertakings under preliminary investigation.[17]
In the concrete case underlying the 2020 decision, numbered 20-01/3-2, documents obtained in the case file revealed that 45 undertakings and an association of undertakings operating in road container transportation in İzmir aimed to fix wages and prevent the transfer of employees between undertakings, both under the activities of an association called EKONDER and through a WhatsApp group created in the association's name. In the case file, numerous messages were shared among undertakings regarding wage fixing and preventing the transfer of employees between undertakings. No objections to this agreement regarding employees were found in the documents. On the contrary, the undertakings reacted negatively both to wage levels and to the transfer of certain employees to competing undertakings. This situation was considered evidence that the parties were in an agreement constituting a violation of Law No. 4054. However, in the same decision, it was determined that the number of vehicles and drivers per month for the undertakings was variable, and no conclusion could be drawn from the available data that mobility in the labor market was restricted or that drivers were unable to move between undertakings. Further, by analyzing the monthly average gross and net driver wages over the past three years and comparing them with the minimum wage, the Authority found that wages differed across undertakings, indicating no significant wage overlap. Thus, it was concluded that the agreement had not had a noticeable impact on the market, and there was no evidence to suggest that drivers were restricted from moving between undertakings. Finally, the Authority noted that the undertakings did not possess enough purchasing power to influence the market significantly and therefore decided not to initiate an investigation. Instead, a written warning was sent to the undertakings, advising them to cease all anti-competitive practices or face legal action under Law No. 4054.
D. Conclusion:
Undertakings competing in the labor market may attempt to protect their human resources, one of their most important assets, and prevent their employees from being hired by competitors, while also trying to reduce wage levels and suppress employee mobility by making “wage fixing” or “non-solicitation” agreements. The sharing of sensitive employee-related information or the determination of working conditions by competitors could also constitute a violation.
As clearly stated in the decisions of the Competition Authority, agreements aimed at fixing employee wages and/or preventing employee solicitation are no different from cartels formed on the buyer side of the market. Buyer-side agreements between competitors are considered competition violations in the U.S., EU, and Turkish competition law practices, with labor cartels serving as an example of buyer cartels.
Agreements between undertakings regarding the labor market can be examined under Law No. 4054, with non-solicitation agreements and agreements on wage and working condition determination being the primary types of competition-restricting agreements in the labor market.
Non-solicitation agreements can be either “explicit non-solicitation agreements” or “non-solicitation agreements as ancillary restraints” and may also be included in franchise agreements. Agreements on wage and working condition determination occur when employers, who are competitors in the same labor market, set wages and financial rights or working conditions for employees at a certain level, and the sharing of sensitive information about employees could lead to similar wage structures among competitors, resulting in a competition violation.
In conclusion, undertakings must avoid anti-competitive practices in the labor market to avoid being subject to investigations by competition authorities and facing sanctions. It is recommended that undertakings review their human resources policies, contracts, and practices as part of a comprehensive competition compliance program.
------------------------
[1] Gündoğan, N., & Biçerli, M. K. Çalışma Ekonomisi (Labour Economics), 2019, p. 4.
[2] Kıran, N. F. İşgücü Pazarında Rekabet Hukuku Uygulamaları (Competition Law Practices in the Labor Market), 2022, pp. 46-47.
[3] Kıran, N. F., ibid., p. 46.
[4] Turkish Competition Board, Decision dated February 24, 2022, No. 22-10/152-62.
[5] Kıran, N. F., ibid., p. 49.
[6] Kıran, N. F., ibid., p. 49.
[7] Kıran, N. F., ibid., p. 51.
[8] Turkish Competition Authority, Glossary of Competition Terms, available at: https://www.rekabet.gov.tr.
[9] Turkish Competition Authority, Glossary of Competition Terms, available at: https://www.rekabet.gov.tr.
[10] Kıran, N. F., ibid., p. 59.
[11] Turkish Competition Board, Decision dated January 2, 2020, No. 20-01/3-2.
[12] Kıran, N. F., ibid., p. 62.
[13] Kıran, N. F., ibid., p. 64.
[14] Turkish Competition Board, Decision dated February 7, 2019, No. 19-06/64-27.
[15] Kıran, N. F., ibid., p. 65.
[16] Kıran, N. F., ibid., p. 66.
[17] Turkish Competition Board, Decision dated July 28, 2005, No. 05-49/710-195.
Türkçe 