Intensified Oversight in Labour Markets by the Competition Authority: New Guidelines Published
On December 3, 2024, the Turkish Competition Authority took a significant step by publishing the “Guidelines on Competition Infringements in Labour Markets” (“Guideline”) within the scope of the Law No. 4054 on the Protection of Competition (“Law No. 4054”). The aim is to address anti-competitive practices that affect wages, employee mobility, and working conditions in labour markets. The draft guideline, that was initially presented for public consultation earlier this year, was formally approved and published pursuant to the Competition Board’s (“Board”) decision dated November 21, 2024[1].
- Who Should Comply with the Guideline?
The Guideline applies to all undertakings that act as employers. A key point highlighted in the Guideline is that undertakings competing in labour markets will be deemed competitors regardless of their areas of activity (i.e. regardless of the markets in which they sell their goods or services).
Just as in other markets, undertakings compete in labour markets to retain their employees or recruit each other’s workforce. In this context, competition for labour, which serves as an input, cannot be considered separately from competition for other production factors and, therefore, falls within the scope of competition law.
In competitive labour markets, undertakings competing for labour are expected to offer the most advantageous wages and working conditions, while employees are anticipated to choose job opportunities that best align with their skills and expectations. However, certain structural characteristics of labour markets can hinder the emergence of effective competition. The Guideline aims to address these issues and promote fair practices within the market.
- Wage Determination and Non-Solicitation Agreements
According to Article 4 of the Law, it is prohibited for undertakings to directly or indirectly (i.e. through other third parties) determine purchase or sale prices, including elements that constitute pricing, such as costs and profits, as well as any other purchase or sale terms. This prohibition applies not only to competitors but also to undertakings in vertical relationships, such as the relationship between a supplier and reseller.
Within this scope, wages and other working conditions provided by undertakings to their employees under an employment agreement (including inter alia wage increases, work periods, fringe benefits, compensation, leave entitlements, non-compete obligations, working place and time, working hours at the workplace, annual leave periods, supplements to the wage, breaks, social benefits such as wedding, maternity, education, food, disability and death benefits) are considered as a cost element and/or purchase terms under Article 4 of the Law. As such, pursuant to the Guideline, agreements between the employers aimed at determining wages and other working conditions constitute competition violation and are prohibited under the Law.
Non-solicitation agreements, are arrangements where one undertaking agrees not to hire the current or former employees of another undertaking. Article 4 of the Law prohibits agreements and practices that involve the division of goods or services markets, or the sharing or control of any market resources or elements. According to the Guideline, non-solicitation agreements between the employers, which aim to artificially allocate the supply of labour among the undertakings, fall under this prohibition.
As per the Guideline, it is possible to say that a non-solicitation agreement also exists in cases where undertakings do not prohibit completely other undertakings from offering jobs or hiring each other’s employees, but make employment conditional upon the approval of each other or of the current employer of the employee. Moreover, those agreements may concern both active employees and former employees of the undertakings. In this sense, while the scope and subject of non-solicitation agreements may differ, what is important is whether there is an agreement between competitors to limit employees’ mobility.
Therefore agreements between undertakings fixing the working conditions of employees and non-solicitation agreement will be considered as direct violation of article 4 of the Law, unless the conditions that i) they ensure new developments and improvements or economic or technical improvement in the production or distribution of goods or the provision of services; ii) the consumer must benefit from those; iii) not eliminating competition in a significant part of the relevant market and iv) not restricting competition more than necessary to achieve the goals set out in the first two requirements, are all satisfied.
- Impact on the M&A Processes and Ancillary Restrictions
Article 7 of the Law prohibits the creation or strengthening of a dominant position through mergers or acquisitions by one or more undertakings, which results in a significant reduction in effective competition in a certain goods or services market. For this reason, M&A transactions that exceed certain turnover thresholds and result in a change of control are subject to the approval of the Board for an analysis as to whether the transaction will create competitive concerns. Given that the labour market is considered a distinct market within the scope of the Guideline, going forward, the impact of such transactions on the labour markets will also be assessed as part of the approval process.
The Guideline does not explicitly address how it will apply to employee non-solicitation requirements set forth for the seller, which were used to be considered as permitted ancillary restrictions in M&A transactions, depending on certain conditions. Under the Guideline, a non-solicitation agreement between the parties of an M&A transaction (e.g. buyer and seller) is deemed as an ancillary restriction and will be evaluated within the framework of ancillary restriction principles and will not be considered a direct violation of Article 4 of the Law.
Although the Guideline acknowledges that ancillary restrictions may be deemed lawful based on the principles of direct relevance, necessity, and proportionality, it remains unclear how these principles will be applied specifically in the context of the prohibition on non-solicitation agreements under the SPAs and SHAs. We believe this issue will be further clarified through future decisions.
- Limits on the Exchange of Information
The framework how the Board evaluates information exchange from a competition law perspective was outlined in the Guidelines on Horizontal Cooperation Agreements. Accordingly, the exchange of competitively sensitive information among the competitors may lead to anti-competitive arrangements by reducing market uncertainty or enabling restrictive cooperation. The Guideline indicates that even when the information exchanged does not pertain to goods /services that the undertakings offer, but to labour force that undertakings benefit as inputs in their activities, it may still have anti-competitive objectives or effects. In the labour market, competitively sensitive information that could lead to such outcomes includes wage-related information or other working conditions (wage increase rates, working hours, side benefits, compensation, and leave entitlements) that have a clear impact on employees’ job preferences.
The Guideline stipulates that, information exchange that meets all of the following conditions will generally not be considered to have a restrictive effect on competition:
- The information exchange must be conducted by an independent third party.
- It must not be possible to identify the source of the data or the individual data content.
- The exchanged information must pertain to data that is at least three months old.
- The information must include contributions from at least ten participants.
- No single participant’s data should account for more than 25% of the total dataset.
According to the Guideline, undertakings that are in dominant position are at higher risk of reducing market uncertainty by sharing competition-sensitive information in the labour markets.
- What Awaits Us? What Should Be Done for Compliance?
The Guidelines call for employers to reassess their practices in the labour market and the below points are what we believe how employers can achieve this.
- Identification of Wage and Non-Solicitation Practices: Conduct thorough reviews to detect and eliminate any practices involving wage determination or employee non-solicitation agreements that may violate the Guideline.
Training of HR and Management teams: Provide targeted compliance trainings for human resources teams and managers to align their behaviours with the principles outlined in the Guidelines.
Compliance in Information Exchanges: Establish clear written protocols to ensure that information exchanges related to the labour market adhere to the legal framework outlined by the Guideline.
The Guideline can be accessed here.
Please contact us, for a detailed assessment and guidance on compliance with the Guideline.
[1] Numbered 24-49/1087-RM(4)
