As some of you may have seen on social media, I had the opportunity to attend the European Competition Lawyers Association (ECLA) conference in Mallorca last week. One of the case studies discussed during the event sparked the idea for this post: It focused on non-poach agreements within the context of cooperations, such as subcontracting and other joint projects. As HR issues receive growing attention in the antitrust world, the question of whether such non-poaching agreements are in line with antitrust laws becomes more relevant in practice. With this post, I would like to offer some insights on this topic.
From a business perspective, agreeing on non-poach with a cooperation partner within, e.g., a joint project and for a limited period of time may serve a legitimate object. Many employers invest substantial resources in the training and professional development of their employees and, in some cases, also entrust them with sensitive business information or trade secrets. These investments are often made with the expectation of long-term loyalty and a return on that investment. However, the question remains whether such objectives are taken into account by antitrust laws.
The European law perspective
Just over a year has passed since the European Commission published its Competition Policy Brief (Brief) on Antitrust in Labour Markets. According to the Commission, “labour is a fundamental factor of production and the ability to attract talent is a key competitive parameter”. In its Brief, the Commission thus clarified that wage-fixing and non-poach agreements generally qualify as anti-competitive restrictions by object (as we have highlighted in our blog post at the time), even if such agreements might have an legitimate goal. The Commission is of the opinion that such objectives could also be achieved by means which are not or less problematic from an antitrust perspective, such as repayment obligations for training costs or non-disclosure agreements.
Furthermore, while the Commission holds that justifying a non-poach agreement could appear possible as an ancillary restraint, it emphasizes that this requires that the cooperation “would be impossible to carry out in the absence of the restriction in question” – which is very hard to prove in practice. Justification under Article 101(3) TFEU is – according to the Commission – also difficult, since “there are usually less restrictive ways of achieving the same result”.
I have some reservations about reading this as a particularly strict approach. While I acknowledge that a broad, indefinite non-poaching agreement between two or more companies can indeed restrict competition for talent, a narrowly tailored, time-limited agreement – applying only to employees involved in a specific project – should be a reasonable and justifiable measure.
Luckily, even the Commission admits that “most cases of wage-fixing and no poach agreements are likely to be dealt with by EU National Competition Authorities due to the geographic scope”.
So – over to the German perspective
It is fair to say that German case law on this matter remains unsettled. In the context of post-contractual non-compete clauses with subcontractors aimed at protecting customer relationships, the German Federal Court of Justice has ruled that such clauses are permissible if they are necessary to safeguard the legitimate interests of the principal contractor from unfair exploitation of their business efforts by the subcontractor. Any restriction must be appropriately limited in scope – geographically, substantively, and temporally – and must be proportionate to the objective it seeks to protect. This ruling, known as the Subunternehmer II decision, was explicitly aligned with the Commissions’ notice on ancillary restraints.
In a 2014 decision, the German Federal Court of Justice stated that post-contractual non-poach clauses within cooperation agreements are valid if they constitute an ancillary provision and are justified by a relationship of mutual trust between the parties or a particular need for protection by one party. The court also determined that such clauses are only valid for a period of up to two years. While the decision was not rendered on the basis of competition law, it can be argued that its underlying rationale aligns with the principles of German competition law. This interpretation could potentially offer companies greater flexibility under national law compared to approach of the Commission outlined above.
Should we take a look across the pond?
Across the Atlantic, non-poach agreements likewise tend to face critical scrutiny. The relatively new guidelines of the US Federal Trade Commission take a strict approach towards non-poach agreements, and the scrutiny of antitrust in the labor market stays a priority under the Trump Administration. Although not explicitly addressed in the aforementioned guidelines, this strict approach likely extends to non-poach clauses related to joint projects as well.
Conclusion: High Risk, Narrow Exceptions
Non-poach agreements with project partners and subcontractors are, as a general rule, difficult from an antitrust perspective. Companies should therefore exercise particular caution before including such provisions in their contracts. Although German antitrust law may offer slightly more flexibility, the legal thresholds for justifying such agreements remain very high.
Given the ongoing scrutiny of labour market restrictions by antitrust authorities – illustrated by the Commission’s current investigations (and recent fines) – it is advisable for companies to reassess their contractual arrangements to ensure compliance with both EU and German competition law. This is especially important considering that non-poach clauses can easily lead to complaints if discovered by affected employees.
Many thanks to our trainees Luise Teuber and Valentin Hanke for the research that formed the basis of this post.
Photo by Erik Mclean on Unsplash
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