HR professionals must be careful not to flout competition law

Compliance Online's experts explain why it is unwise to ignore competition law as an HR professional.

HR professionals currently have a lot to navigate. Covid-19 resulted in many planned and unplanned changes in how workforces are managed. However, during these times it is important not to lose sight of other important compliance obligations, such as those relating to competition law.

A relatively recent development is a renewed focus by international competition law regulators on competition between employers in the job market.  In the past 2 years, regulators in the United States have increasingly focused on how employers conduct themselves in job markets and this interest has spread to other regions and countries, including the EU and the United Kingdom. The South African competition authorities are alive to global developments and will certainly have these developments on their radar.

Most HR professionals are aware that collusive agreements between competitors is anti-competitive and, more recently in the context of Covid-19, that companies which engage in exploitative pricing practices, will likely find themselves on the wrong side of the Competition Act with serious financial and reputational consequences.   

Notwithstanding, competition law compliance has traditionally not been a high priority area in the day-to-day responsibilities of HR professionals. Many HR professionals are not aware that competition law also applies to certain employment practices and are relevant to aspects such as agreements between companies to fix employees’ salaries/working conditions, agreements to not poach each other’s employees, as well as the way that sensitive business information relating to salaries and employee benefits are shared – especially during merger negotiations.

Concerns regarding anti-competitive labour practices were brought into sharper focus when the US Department of Justice and the US Federal Trade Commission issued a joint statement in April this year. In this statement, the agencies re-iterated their no tolerance approach to companies and individuals who use COVID-19 to harm competition by entering into unlawful wage-fixing and no-poach agreements with their competitors.

This risk is not theoretical, there are practical examples

This renewed focus of competition law on HR practices emanates from a 2018 case, when the US Department of Justice reached a settlement with Knorr-Bremse and Wabtec, two of the world’s largest rail equipment companies, which had for years maintained unlawful agreements not to compete for each other’s employees. Insofar as the employment market for rail industry workers was concerned, it was found that these “no-poach” agreements, “limited their access to better job opportunities, restricted their mobility, and deprived them of competitively significant information that they could have used to negotiate for better terms of employment.

The aforementioned case comes some years after US-based technology companies, most notably Google, Apple, Intel, eBay and Adobe, were found to have made secret deals not to hire each other’s engineers.  While these agreements may have had the effect of ensuring that new products were more consistently brought to market, it was found to have an adverse impact on employees’ job prospects and incomes.  Much of this was uncovered through embarrassing emails from the top management of these companies who appeared to be knowingly colluding to impede their employees’ job mobility. On a practical level, this took the form of agreeing not to cold call each other’s employees.

Similarly, the Japan Fair Trade Commission, as well as the Hong Kong Competition Commission, have highlighted their concerns relating to potential anticompetitive conduct in hiring employees (including agreements on employment terms and conditions).

It is important to point out that in the context of merger enforcement, the impact of a particular merger or acquisition on employment and conditions of employment has been an enduring focus of the South African competition authorities. It is now not surprising and not uncommon to see merger remedies involving a strong public interest component which is linked to employment. This is well illustrated in the mergers involving Momentum/Metropolitan, Massmart/Walmart and more recently in Pepsico/Pioneer Foods.

What should be done at a practical level?

It is important to remember that one of the basic principles of competition law is that reaching a collusive agreement with your competitor is illegal.

Within this context it is important for HR professionals to provide the required guidance to ensure that the company does not engage in the following conduct:

  • Discuss or enter into agreements with its competitors to fix salaries, other aspects of compensation and employment terms.
  • Discuss or enter into agreements with its competitors not to solicit or hire each other’s employees.
  • Not exchange business-sensitive or competitively sensitive information with competitors without obtaining legal advice.
  • When participating in industry surveys or benchmarking exercises, ensure that the proper competition law compliance protocols are followed.
  • If your company is entering into merger negotiations, remember the public interest (i.e. employment effects) obligations required for notifications. However, do be careful about how you disclose sensitive HR data about your company before the merger is implemented.
  • It is always good to have an awareness about how competition law can have an application on one’s role as an HR professional and to seek legal advice if further clarity is required.

This article was written by Compliance Online director DR Minette Smith and economist Marylla Govender.