Everyone is talking about it (and so have we): Regulators in EU Member States are increasingly going after antitrust infringements in human resources (HR), namely so-called HR-cartels. These cartels involve illegal agreements between companies, e.g., not to hire each other’s employees (no-poach agreements) or to coordinate wage levels. It will only be a matter of time until private cartel damage claims follow, particularly in cases where employees are negatively affected by wage suppression or restricted job mobility.
Focus on HR-Cartels
As we all know (see our previous blog post here), HR-cartels typically take two forms: no-poach agreements and wage-fixing arrangements. No-poach agreements occur when employers agree not to hire or solicit each other’s employees, limiting workers’ mobility and bargaining power. Wage-fixing agreements involve employers agreeing on salary levels, which restricts workers’ ability to negotiate for better wages.
This growing scrutiny reflects the regulators’ acknowledgment that labor markets, like product markets, can be distorted by anti-competitive practices with significant negative consequences for employees. Alongside the European Commission, regulators in various EU Member States, e.g., in Belgium, France, the Netherlands, Portugal, Czech Republic, Hungary or Poland have taken concrete steps to investigate or issue fines for labor market-related cartel activities.
Private Cartel Damage Claims in HR Cartels
The focus on this area is likely to lead to an increase also in private enforcement. It would not come as a surprise if we were to see private cartel damage claims based on respective infringements soon – be it as follow-on or standalone claim.
Private cartel damage claims are traditionally pursued as follow-on actions, meaning they are initiated after a competition authority has investigated and fined the cartel (see here).
However, the evolving landscape of HR-cartel regulation suggests that standalone claims (see here) may become increasingly viable in this area. This may in particular be the case because a decision by an authority to “follow” may be less frequently available or because agreements appear to be less complex, and the respective employee / claimant is “closer” to the relevant facts which makes is easier than in other cartel cases for the individual employee to prove the infringement standalone.
Potential Damage Theories
The theories of harm in HR-cartel cases are mostly centered on the assumption that anti-competitive behavior in labor markets leads to an artificial suppression of wages or employment conditions that would have otherwise been determined by competitive forces.
- Wage Suppression: The most obvious damage theory involves the suppression of wages. In a competitive labor market, employers compete for talents by offering better wages and benefits. However, when companies collude – whether by agreeing not to compete for employees (no-poach agreements) or by fixing wages – competition can be artificially restricted. The result is that employees are underpaid compared to what they would have earned in a competitive market which they could compensate for by way of litigation.
- Reduced Job Mobility: No-poach agreements might also lead to reduced job mobility, as employees are unable to move freely between firms that might otherwise compete for their skills. The restricted movement between employers reduces employees’ ability to negotiate better compensation or working conditions, leading to financial stagnation. Further, reduced job mobility can cause career stagnation with the consequence of employees missing out on promotions or other opportunities that would have been available had they been able to switch employers. These limitations on job mobility represent a significant harm, especially in high-skill industries where lateral movement between competitors can be a key driver of career advancement.
Quantifying Damages in HR-Cartel Cases
One of the critical issues in HR-cartel damage claims will be – as in other private cartel damage actions – the quantification of harm. In product market cartel cases, damages are typically calculated based on overcharges to consumers. In HR-cartel cases, the challenge will be to estimate the difference between the wages employees received and the wages they would have earned in a competitive labor market.
Different economic models can be employed to estimate this wage gap, including e.g., regression analysis comparing wages in colluding firms with those in non-colluding firms, as well as wages during the infringement period with those before and / or after. Additionally, models that control factors such as inflation, industry trends, and individual career trajectories can be used to estimate the suppressed wages and quantify the harm suffered by employees. The economic complexities involved in calculating these damages mean that – although recent case law of the German Federal Court of Justice has shown claimant-friendly (again) when it comes to damage estimation – expert testimony will often, nevertheless, be a key component of any litigation in this area.
Conclusion
As regulators continue to crack down on anti-competitive behavior in labor markets, HR-cartels are emerging as a significant area of concern. The suppression of wages and limitation of job mobility through no-poach and wage-fixing agreements can have profound negative effects on employees who are increasingly viewed as potential claimants in private cartel damage claims. While follow-on claims have been the more common route to pursue private cartel damage claims, also standalone claims seem to be a promising way of pursuing a claim for damages in the area. With appropriate economic models and legal frameworks in place, private cartel damage claims linked to HR-cartels have the potential to become a significant area of antitrust litigation.
As this field develops, companies will need to be increasingly vigilant in ensuring their HR practices comply with competition law, or they risk facing both regulatory sanctions and costly private damage claims.
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