New development
The Turkish Competition Authority (“Authority“) has published the awaited Draft Guidelines on Competition Violations in Labor Markets (“Draft Guidelines“) for public consultation on 16 September 2024.
To recall, after the Authority launched an investigation against private hospitals in November 2020 and several undertakings which were mainly active in digital sectors in April 2021, the President of the Turkish Competition Board (“Board”), Birol Küle, made a statement to Anadolu Agency in May 2021 noting that the Board would prioritise working on a guideline in relation to competition law concerns in labor markets to eliminate the legal uncertainty companies and employers may face, by emphasizing the novelty of those concerns.[1]
Once the guidelines are finalised and published, Türkiye will be one of the jurisdictions with a particular secondary legislation on competition law concerns in labor markets, along with the European Union (“EU”),[2] the United Kingdom (“UK”)[3] and the United States (“US”).[4]
In line with the other guidelines in other jurisdictions, the Draft Guidelines address no-poach and wage fixing agreements. In addition, the Draft Guidelines provide guidance on exchange of information and ancillary restraints in labor markets. Finally, the Draft Guidelines also set the principles for the assessment of labor market related restrictions under the individual exemption, abuse of dominance and merger control reviews.
Overview of the Draft Guidelines
The Draft Guidelines consider agreements or concerted practices between employers that have the purpose or effect of preventing the free movement of labor in the market or fixing wages and other working conditions of employees, and such decisions and practices of associations of undertakings, as a violation of Article 4 of the Law No. 4054 on the Protection of Competition (“Law No. 4054”).
The Draft Guidelines clarify that labor, as an indispensable input to the companies’ activities, cannot be considered separate from their operations and therefore, would fall within the scope of competition law. Further, it underlines the imbalance between employers and employees, both in terms of their numbers and negotiation power. In this regard, the Draft Guidelines note the likely possibility of anti-competitive conducts by employers and the potential consequential effects in the market, such as restricting the mobility of employees, inefficient distribution of labor in the market, potential barriers against innovative ideas and tech developments, and ultimately a decrease in the amount and variety of goods, with higher prices and decreased quality.
After the Authority’s investigation against several undertakings mainly active in digital sectors in April 2021, discussions were raised on whether labor market related conducts should be between employers competing in terms of output due to the difference in the main fields of activities of the investigated undertakings.[5] Accordingly, in the recent investigations initiated by the Board, the Board imposed administrative fines on the undertakings since the undertakings violated Art. 4 of the Law No. 4054 in the labor market.[6] The Draft Guidelines now bring a certainty to this discussion by stipulating that undertakings operating in different sectors may be considered as competitors in the labor market if they have similar demand structures. The Draft Guidelines further assess that no-poach agreements, wage-fixing agreements and information exchanges may be considered in the same framework with agreements which are within the scope of the principles set forth in Art. 4 of Law No. 4054 that are classified as cartels.
Although the Draft Guidelines indicate that there are different types of agreements restricting competition between undertakings in labor markets, the Draft Guidelines focus on two common types of violations: (i) wage fixing agreements and (ii) no-poach agreements.
- Wage fixing agreements
Under the Draft Guidelines, wage fixing agreements are agreements in relation to the direct or indirect control or suppression of the wages to be paid and/or any other rights to be provided to employees at a certain level or within a certain periodic time period. Wages and other working conditions (e.g., wage increases, working hours, employee benefits, compensation, physical working conditions, annual leave rights, non-compete obligations etc,) provided in return for labor are considered as the cost and/or purchase condition constituting the price within the scope of Article 4 of the Law No. 4054. In this regard, the Draft Guidelines indicate that any agreement on that front can be examined within the scope of Article 4 of the Law No. 4054.
According to the Draft Guidelines, wage fixing agreements arising in labor markets are considered within the same bucket with the traditional price fixing agreements. Therefore, they constitute a violation ‘by object’ and would be treated as cartels.
The Draft Guidelines also emphasize the possibility of those agreements’ being facilitated by a third party. In light of this, third parties may be considered as part of the violation depending on the factual circumstances, in accordance with the recent hub & spoke cases of the Board[7] and the amendment on the leniency regulation in December 2023, which addresses the situation of the cartel facilitators.[8]
- No-poach agreements
The Draft Guidelines define no-poach agreements as agreements where one undertaking agrees not to offer employment to, or not to recruit, employees of another undertaking, directly or indirectly. In addition to the non-recruitment of employees, undertakings receiving consent from each other for employee transfers or employees receiving consent from their current employers signal the existence of no-poach agreements. Such agreements may be directed towards both current and former employees. In parallel, it can be concluded that the Draft Guidelines consider whether the agreement is intended to restrict the free movement of labor, rather than the scope of the no-poach agreement.
Accordingly, the Draft Guidelines state that no-poach agreements aim to artificially share the labor supply between undertakings.
- Information exchange
Within the scope of the Draft Guidelines, information refers to any direct or indirect data related to labor, and information exchange refers to the circulation of such information between undertakings. The exchange of such information may also be considered as an agreement or concerted practice restricting competition within the scope of Article 4 of the Law No. 4054, as it facilitates the increase of transparency in the market, the forming of anti-competitive collaborations between competitors, or the easing of monitoring of the implementation of agreements between competitors. Therefore, according to the Draft Guidelines, since the exchange of sensitive information in relation to employee conditions by competitors may constitute coordination in terms of wages and fringe benefits paid by competitors to employees, such exchange may indicate the existence of a wage fixing agreement.
For undertakings competing in the labor market, information on all kinds of working conditions of employees, such as wages, wage increases, working hours, fringe benefits, compensation, physical working conditions, and leave entitlements, is considered as competition sensitive information. Accordingly, in the Draft Guidelines, it is stated that any exchange of information for the purpose of restricting competition in the labor market restricts competition regardless of its effect.
According to the Draft Guidelines, in cases where it is determined that the information exchange makes the agreement easier, the information exchange will be accepted as part of the agreement. Furthermore, the Draft Guidelines state that the Board will assess, within the circumstances of the case, whether the exchange of information creates an anti-competitive effect or not.
The relevant violation type does not only apply to information exchange between undertakings competing in the labor market, but also includes market research organisations and private employment agencies participating as third parties in the exchange of information. According to the Draft Guidelines, undertakings providing research services which include data on employee conditions, particularly wage information, should aggregate and anonymise the data they obtain. This is because data obtained from a small number of undertakings are more likely to have anticompetitive effects.
All in all, information that is current or future-oriented, not sufficiently aggregated or anonymised, and not obtained through publicly available channels may have anticompetitive effects under the Draft Guidelines.
- Ancillary restraints
The Draft Guidelines define ancillary restraints as restrictions that are not intended to prevent, distort or restrict competition and do not constitute the primary purpose of the main agreement, but are (i) directly related to the main agreement, (ii) necessary for the implementation or maintenance of the main agreement, and (iii) proportionate, similar to the guidelines provided for the assessment of such restraints in mergers and acquisitions.[9]
According to the Draft Guidelines, restraints that do not fulfil these three conditions collectively will not be considered as ancillary restraints and the burden of proof will be on the undertakings to prove that the conditions are met.
- Direct relevance: Ancillary restraints must be an integral part of the main agreement and depend on its implementation. Therefore, the restriction cannot exist without the main agreement. In order to fulfil this condition, it is necessary to clearly indicate which main agreement the restriction relates to, however the introduction of the ancillary restriction at the same time with the main agreement will not be sufficient to meet this condition. On the other hand, if the other conditions are fulfilled, restrictions may be deemed directly related even if they were introduced at a different time to the main agreement.
- Necessity: Ancillary restraints are necessary for the implementation or maintenance of the original agreement and the assessment of this condition is based on objective circumstances. Taking into account the characteristics of the market and the main agreement, if undertakings similarly situated would not be parties to the main agreement without such ancillary restraints, the necessity condition is satisfied. However, if undertakings are able to implement or maintain the original agreement with less restrictive restrictions on competition or without the ancillary restraints, this condition will not be satisfied. The difficulty created by the absence of the ancillary restraint in the implementation of the main agreement is not considered as a necessity.
- Proportionality: The objective of the restraint in question must not be achievable by another method that restricts competition less. In the evaluation of the proportionality condition, the condition is not met in the following circumstances:
- Duration of the restraint: the duration of the restraint is not expressly stated, exceeds the duration of the main agreement, or precedes the period sufficient for the main agreement;
- Employee qualification: the restraint is imposed on employees who are not key staff for the implementation of the main agreement or it is not clear to which employees the restraint applies;
- Geographical area: restraint is imposed beyond the area to which the main agreement applies;
- Parties: where instead of the restraint being imposed on one or a small number of parties to the main agreement, it is imposed on a larger number or all parties.
In addition, the Draft Guidelines recommend such restraints to be stipulated in writing to ensure clarity on their scope. If the identified ancillary restraints meet the conditions specified in the Draft Guidelines, they will not be considered within the scope of Article 4 of the Law No. 4054.
Application of other articles of the Law
Exemption
According to the Draft Guidelines, wage fixing and no-poach agreements in labor markets and information exchanges for the purpose of restricting competition will not benefit from exemption as a rule. This is because the conditions for exemption, such as innovation, improvement and providing consumer benefit, are generally not met in such agreements. The Draft Guidelines consider agreements restricting competition in labor market to be outside the scope of the exemption and unlawful.
Abuse of Dominant Position
According to the Draft Guidelines, abuse of dominant position in labor markets may occur in two circumstances. These can be seen as (i) the dominant undertaking in the relevant labor market restricting the movement of labor, and (ii) the dominant undertaking creating anticompetitive effects on the labor market through exclusionary behaviour. In making this assessment, whether the relevant undertaking is in a dominant position both in the labor market and in the relevant product or service market will be determined.
Mergers and Acquisitions
Article 7 of the Law No. 4054 prohibits mergers and acquisitions that may result in a substantial lessening of competition, and the Draft Guidelines set out a number of elements to determine whether a transaction significantly restricts competition in labor market. Among these, to determine whether the transaction is a killer acquisition in the labor market, various competition parameters in the labor market are specified, including the shares of the parties to the transaction and the level of concentration of the market, similarity of the quality of the employees employed by the transaction parties, the organization of labor suppliers in the relevant labor market and the costs of relocation.
Conclusion
With the Draft Guidelines, the Authority has gathered the fundamental principles stated in its previous decisions into a single guideline and aims to provide certainty regarding labor market violations. Although the final assessments of the Authority are still subject to change, it can be noted that the Authority will continue to maintain its stance from recent years in relation to the labor market.
[1] See, Turkish Competition Authority President Birol Küle’s Interview dated 05.05.2021.
[2] The European Commission (“Commission“) has clarified its approach to wage fixing and no-poach agreements in labor markets in its policy brief published in May 2024. See, Competition Policy Brief.
[3] The Competition and Markets Authority has published a guidance for the employers on how to avoid anti-competitive behaviour in February 2023. See, Guidance for UK Employers.
[4] The Federal Trade Commission’s antitrust guidance for human resource professionals published in October 2016. See, Guidance for Human Resources Professionals.
[5] The relevant investigation was finalized with the Board’s 48 Undertakings Decision dated 26.07.2023 and 23-34/649-218. As a result of the investigation to determine whether undertakings operating predominantly in digital markets violated Law No. 4054 in labor markets, the Turkish Competition Board imposed administrative fines on 16 undertakings for restricting competition through no-poach agreements in the labor market.
[6] The Board’s Private Hospitals Decision dated 24.02.2022 and numbered 22-10/152-62; The Board’s 48 Undertakings Decision dated 26.07.2023 and 23-34/649-218; The Board’s French Schools Decision dated 24.04.2024 and numbered 24-20/466-196; The Board’s IT Companies decision dated 27.02.2024 and numbered 24-10/170-66; The Board’s Pharma Decision (The Authority did not publish decision date and its number)
[7] The Board’s FMCG Decision dated 21-53/747-360 and numbered 28.10.2021; The Board’s Sunny Decision dated 05.01.2023 and numbered 2022-4-010; the Board’s Eczacıbaşı Decision dated 09.03.2023 and numbered 2022-2-046.
[8] According to Turkish Official Gazette dated 16.11.2023 and numbered 32401, Cartel Facilitator is undertakings and associations of undertakings which mediate for organizing and/or maintaining a cartel, facilitate the organization and/or maintaining a cartel with their activities, without carrying out activities at the same level of production or distribution chain as the parties to the cartel.
[9] Guidelines on Undertakings Concerned, Turnover and Ancillary Restraints in Mergers and Acquisitions, para. 45-51.
