Antitrust enforcement in the labor market and safe harbors

Human Resources (“HR”) practices are finally in the spotlight of the Brazilian competition authority (“CADE”), following an enforcement trend introduced and recently strengthened in many jurisdictions.

Despite not providing any previous guidance on such practices (e.g., by means of guidelines, soft law and case law), in March 2021, CADE opened an investigation against companies active in the health sector for alleged (i) exchange of commercially-sensitive information on compensation, salary adjustments and benefits offered to employees; and (ii) sporadic price fixing and coordination of hiring terms and commercial conditions.

CADE’s unprecedented approach towards such conducts may set the tone for HR-practices across all sectors of the Brazilian economy. Therefore, companies active in Brazil should err on the side of caution and consider monitoring CADE’s first HR case, as well as reviewing their own HR practices such as benchmarking activities and agreements with non-compete or no-poach provisions.

This article discusses lessons learned from foreign authorities and CADE’s limited experience and points to safe harbors regarding HR practices in Brazil.

Anticompetitive practices in the labor market

The Brazilian Antitrust Law provides for the prevention and repression of anticompetitive conducts in order to protect markets’ competition and secure lower prices, variety of products and innovation. Authorities argue that the same logic applies to the labor market since companies also compete towards hiring or retaining employees. Hence, competition between employers would lead to better compensation, benefits and greater job opportunities.

Typical collusive practices in labor markets include (i) wage fixing agreements (e.g., regarding compensation and benefits) (ii) no-poach agreements and (iii) agreements for coordinating labor conditions. Unilateral conducts may also affect labor market conditions, such as (i) non-compete agreements and (ii) abuse of monopsony power. Standalone exchange of competitively-sensitive information (i.e., non-related to agreements) may also be considered a violation to the Brazilian Antitrust Law.

International experience

During the past few years, authorities across many jurisdictions focused their attention on antitrust concerns in the labor market due to the raise in concentration and employees entering into non-competition agreements . Most recently, several authorities have promised to adopt a more stringent approach to the prosecution of anticompetitive practices in the HR market .

Guidelines on anticompetitive HR practices and years of experience from these authorities have contributed to enhanced transparency and greater legal certainty on the matter. In view of this landscape, a few enforcement trends and tip offs can be noted.

First, most prosecuted HR-related cases involved wage fixing agreements, no-poach agreements or exchange of information in the context of anticompetitive agreements , which were treated as quasi per se or per se conducts. Therefore, most decisions involving agreements did not even assess potential pro-competitive arguments and authorities only had to prove that the alleged conduct took place, but not its effects.

On the other hand, most cases involving standalone exchanges of sensitive HR information were reviewed under the rule of reason approach (i.e., to deem such exchanges anticompetitive, authorities had to prove their effects or at least potential effects). For instance, when ruling a case involving alleged exchange of information between petroleum companies with the purpose of depressing salaries , the United States Court of Appeal of the Second Circuit assessed the market’s concentration, fungibility of the plaintiffs’ services and elasticity of demand in order to determine the susceptibility of the industry to tacit collusion.

Interestingly though, a non-solicitation agreement between healthcare staffing companies was recently reviewed under the rule of reason approach and deemed an ancillary restraint since it was part of a collaboration agreement with a pro-competitive purpose (i.e. to fulfill the demand of hospitals for travel nurses). The case was dismissed.

The case matter and other recent cases regarding technology companies (e.g., Adobe Systems, Apple, Google, Intel, Intuit, Pixar, Lucasfilm and Ebay) provided for safe harbors regarding no-poach provisions. North-American courts found that not all non-poach agreements are prohibited. Such agreements will be reviewed under the rule of reason approach when reasonably necessary for, and thus ancillary to, legitimate procompetitive collaborations. The courts further clarified that no-poach provisions may be necessary for mergers and acquisitions, contracts with consultants, auditors, recruiting agencies, resellers, OEMs, legitimate collaboration agreements, etc.

CADE’s experience and safe harbors

CADE has not reviewed cases in which the market for labor and/or hiring and recruiting practices was analyzed in depth. Cases regarding such markets could pose challenges to CADE’s assessment due to the Brazilian labor market specific competitive dynamics. For instance, while collective negotiations amongst competitors would be considered a cartel violation in other markets, they are a standard and legal practice in the Brazilian labor market.

Case law in this segment has been limited to few merger cases involving companies in the market for hiring of temporary labor; and others where CADE reviewed the competitive effect of specific clauses on non-approaching key employees of the target for a limited period of time.

Exchange of any type of sensitive information amongst competitors could constitute a violation of Brazilian antitrust legislation. Brazilian competition law defines offenses broadly to encompass any type of conduct that may have as its object or effect a restraint on competition. A conduct is considered illicit even if it does not produce actual effects against competition, as long as it has the potential of producing such effects. This said, the applicability of antitrust laws to the strictly regulated Brazilian labor market is still an open question and has not been tested in Brazilian courts, there being legal basis to contest it for the plaintiff bold enough to resort to local courts.

Apart from the abovementioned safe harbors towards no-poach clauses provided by foreign authorities, CADE’s approach to exchange of information within other markets and to non-compete clauses in merger case reviews also provide guidance to market players regarding HR practices.

For instance, pursuant to CADE’s case law and Gun Jumping Guidelines , when entering into benchmarking activities, market players should consider the sensitivity of information exchanged from a competition standpoint (e.g., regulatory compliance information on labor markets will most likely not be deemed sensitive by CADE), its means of exchange and whether a third party should be involved.

Finally, CADE has held that non-competition clauses are valid when they have a clear and limited scope in regard to the period of time and the geographic area in which it applies. As a general rule, a term of five (5) years would be deemed acceptable by CADE .