Turkish Competition Authority Published The Guidelines On Competition Law Violations In Labor Markets

Turkish Competition Authority ("TCA") recently published the long-awaited Guidelines on Competition Violations in the Labor Markets ("Guidelines")¹, which identify competition violations in labor markets. The Guidelines are one of the few examples in the labor markets and the only one in the world to examine violations related to "anti - competitive agreements" and the "exemption regime" as well as "abuse of dominant position" and "mergers and acquisitions". These Guidelines are based on the principles of the TCA's case law rather than on the adoption of foreign legislation.

With the Guidelines, TCA aims to set out the basic principles for assessing the effects of anti-competitive conduct on labor markets. The Guidelines provide an overview of the types of anti-competitive practices in labor markets, the circumstances under which violations may occur, and whether an assessment of labor markets is required to supervise the dominant position and mergers & acquisitions. In the Guidelines, the types of competition infringements in labor markets are first addressed within the scope of Article 4 of Act No. 4054 on the Protection of Competition under the headings of (i) no-poaching agreements, (ii) wage-fixing agreements and (iii) information exchange, and then assessments in terms of ancillary restraints and other articles of the Act is provided.

Through the Guidelines, the TCA has made it clear that it does not see labor markets as different from other markets. The TCA has chosen not to include detailed examples in the Guidelines due to the limited number of reasoned decisions on labor markets. Furthermore, in the event of a future investigation, the TCA does not want to mislead stakeholders with specific examples and limit the scope of possible violations.

This article will explain the provisions of the Guidelines, covering the analysis of "wage fixing and non-poaching" agreements under Article 4, the evaluation of "ancillary restrictions," and an assessment of the articles on the "exemption regime, abuse of dominant position, and mergers and acquisitions." These provisions are outlined as follows:

• Wage-fixing agreements are treated similarly to price-fixing agreements under Article 4. Wages and working conditions are considered costs/purchase conditions, constituting "price" under competition law.
• No-poaching agreements, where one employer refrains from hiring another's employees, can be classified into naked and non-explicit types, both of which may be treated as infringements if they restrict employee mobility and are evaluated under the same framework as customer allocation agreements, potentially being considered cartels if they restrict competition.
• The exchange of information such as wages, benefits and working conditions may lead to anti-competitive effects. In order for the exchange of information not to be anticompetitive, it should be anonymized and outdated.
• Ancillary restrictions in employment contracts that are not intended to restrict competition but are necessary to achieve the objectives of the contract will not constitute a violation, while ancillary restrictions that are unrelated to the main contract and are not necessary or proportionate will be considered as violations.
• The assessment of the dominant position in labor markets does not depend on whether competitors operate in the same sectors. All employers are considered competitors in terms of the labor markets.
• In assessing whether mergers and acquisitions restrict competition in the labor market, factors such as the shares of the transaction parties in the relevant labor market and the level of concentration of the market, the similarity of the qualifications of the employees employed by the transaction parties, entry barriers to the relevant product market, the organization of labor suppliers in the relevant labor market, and the costs of changing workplaces are taken into consideration.

After presenting the provisions in the Guidelines, our views will be provided on whether these provisions are sufficient to address potential competition violations and whether certain issues have been clarified or not.

• Application of Article 4.

The first part of the Guidelines outline the scope of Article 4 of Act No. 4054, which prohibits agreements, concerted practices, and decisions that restrict competition, in broad terms. It presents an overview of potential violations of Article 4 in the labor markets, covering issues such as wage-fixing agreements, no-poaching agreements and information exchange.

1. Wage Fixing Agreements

Wage fixing agreements are regarded within the same scope as price fixing agreements and are considered violations under Article 4 of Act No. 4054. In this context, wages and other working conditions provided by undertakings in return for the labor performed by employees under an employment contract are considered as costs and/or purchase conditions that constitute the price within the scope of Article 4 of the Act. Therefore, agreements for the determination of wages and other working conditions are deemed to be contrary to competition law, just like agreements for the determination of price and price-related elements.

In addition, wage-fixing agreements are evaluated within the same framework as price-fixing agreements that occur on the output side of the market. In this context, wage-fixing agreements that constitute a violation in terms of purpose are considered cartels.²

2. No-Poaching Agreements

Article 4 is also important in relation to no-poaching agreements between employers. The Guidelines define no-poaching agreements as "agreements, directly or indirectly, by one undertaking not to offer employment to, or not to recruit, employees of another undertaking." No-poaching agreements are categorized into naked no-poaching agreements and non-explicit no-poaching agreements, where employment is subject to the "consent" of the undertakings. However, this distinction is implicit in the Guidelines. In this context, it is stated that what is essential for characterizing no-poaching agreements as infringements is whether there is an agreement between competitors to restrict employee mobility. The Authority has explained that no-poaching agreements will be evaluated under the same framework as customer allocation agreements. Thus, "naked no-poaching agreements," which constitute a violation in terms of purpose, are considered cartels.

3. Information Exchange

Under Article 4, another type of violation is "information exchange", and the Guidelines address the nature of the information that may be subject to violation and how it may be shared. It draws on the Guidelines on Horizontal Cooperation Agreements³ to establish the theoretical framework for information exchange. In terms of undertakings competing in the labor market, it is assessed that information on all kinds of working conditions of employees such as wages, wage increases, working hours, fringe benefits, compensation, physical working conditions, leave rights, etc. will be considered as competition-sensitive information and the exchange of such information may lead to anticompetitive purposes or effects. Furthermore, according to the Guidelines, any exchange of information aimed at restricting competition in the labor market can be deemed as a restriction of competition, regardless of its effect.⁴

The concept of "competitor" in the labor market is much broader than in other markets. For instance, even if two employees do not work in the same sector, the exchange of information between competitor undertakings/employers regarding the salaries, benefits and working conditions of their employees may be considered as an exchange of information between competitors.

Furthermore, it is stated that information exchange may occur directly between undertakings or through intermediaries and third-party channels such as platforms and market research companies. In this context, it is also stated that exchanging information between undertakings that is not i) aggregated, ii) current or forward-looking, iii) allows for understanding the data source or individual data, or iv) is not publicly available may restrict competition.

Lastly, for the exchange of information to avoid anti-competitive effects, it must meet the following conditions:

1. The exchange of information should be conducted by an independent third party,
2. The data source and individual data content must not be identifiable,
3. The information exchanged must be at least three months outdated,
4. The information must include data from at least ten participants,
5. No participant's data should weigh more than 25% of the total data.⁵

• Ancillary Restrictions

The Guidelines examine the potential violation of Article 4 concerning ancillary restrictions in employment contracts. It is clarified that restrictions imposed on the parties to the contract that are not intended to prevent or restrict competition, do not form the essence of the contract, but are necessary to achieve the objectives of the contract and are directly related to those objectives (ancillary restrictions), will not be assessed under Article 4 of the Act. However, any other restrictions that limit competition will be evaluated within the scope of Article 4. In other words, ancillary restrictions that are not directly related, necessary and proportionate to the main agreement will be considered within the scope of wage-fixing and no-poaching agreements and considered a breach in terms of purpose. In this context, it is noteworthy that the Guidelines do not mention that in cases where a no-poaching agreement appears as an obligation—an ancillary restriction—attached to a separate contractual relationship, such as a service, license, or franchise agreement, it may have competition-enhancing effects.

• Application of the Other Provisions of the Act.

In the Guidelines, it is stated that the principles set out in the Guidelines on the General Principles of Exemption will generally be taken as basis in the evaluation of agreements which restricts competition between employers in terms of the conditions listed in Article 5. In other words, the exemption rule outlined in Article 5 of the Act which allows agreements, decisions, and actions that restrict competition to be exempted from the provisions of Article 4 also applies to the labor market. It is also stated that wage fixing agreements and no-poaching agreements in the labor markets and information exchanges to restrict competition cannot benefit from the exemption as a rule.⁶

The Guidelines also address the "competitor" relationship more comprehensively in terms of Article 6 ("dominant position"). In this regard, "exclusionary, exploitative and discriminatory" practices may concern all competitors in the labor market, not only competitors operating in the same sector.

To rephrase, the Guidelines state that it will be examined whether the undertaking under examination has a dominant position both in the relevant product (or service) market and in the relevant labor market.⁷

In determining whether the transaction leads to a significant lessening of competition in the labor market, including but not limited to; the shares of the transaction parties in the relevant labor market and the level of concentration of the market, the closeness of the qualifications of the employees employed by the transaction parties, the barriers to entry into the relevant product market, the organisation of labor suppliers in the relevant labor market, the costs of changing workplaces, the possibilities of the competitors of the transaction parties to increase capacity utilisation or make new investments, potential competitive pressure, whether the transaction increases the possibilities of cooperation between competitors operating in the relevant labor market, whether the transaction carries the possibility of a killer acquisition.⁸

• Overall Assessment of the Guidelines

The Guidelines represent a significant step in clarifying competition law in terms of labor markets, providing a comprehensive framework for assessing anti-competitive practices such as wage-fixing agreements, no-poaching agreements, and information exchanges. This approach emphasizes that labor, like any other input in the market, cannot be treated separately from other competitive factors.

While the Guidelines broadly cover violations under Article 4, including wage-fixing agreements, no-poaching agreements, and the exchange of sensitive information, there are still some gray areas, particularly in how ancillary restrictions will be handled. For example, provisions that prohibit employee transfers in contractual arrangements, such as those in service, license, or franchise agreements, may be deemed "ancillary restraints" under competition law, provided they are integral to a legitimate contractual relationship. Whether the Turkish Competition Authority will adopt this more lenient approach, as seen in other jurisdictions like the U.S., remains uncertain, but it is a key area for future clarity.

It is crucial for businesses to recognize that these Guidelines do not treat labor markets in isolation. The TCA's approach mirrors its treatment of other markets, suggesting that restrictions on competition in the labor market will be evaluated with the same rigor as those in product markets. Consequently, companies should be cautious about entering into agreements that might limit employee mobility or exchange of sensitive information, especially if such practices could restrict competition.

While some questions remain regarding the specific application of these rules, the Guidelines provide valuable insights for businesses and legal practitioners navigating competition law in the labor market. By drawing parallels with other markets, it is likely that the TCA will continue to apply the same competition principles and provide a clearer, more predictable framework for future decisions. Nevertheless, some issues remain open to interpretation. In this regard, employers should carefully monitor the TCA's future decisions.

Footnotes

1 Guidelines on Competition Law Violations in Labor Markets, 21.11.2024, 24-49/1087-RM(4), Turkish Competition Authority. https://www.rekabet.gov.tr/Dosya/is-gucu-piyasalarindaki-rekabet-ihlallerine-yonelik-kilavuz-20241203141442657.pdf

2 Guidelines on Competition Law Violations in Labor Markets, 21.11.2024, 24-49/1087-RM(4), page.6., TCA.

3 Guidelines on Horizontal Cooperation Agreements, 30.4.2013, 13-24/326-RM(6), TCA.

4 Guidelines on Competition Law Violations in Labor Markets page.7., TCA.

5 Ibid p. 9.

6 Ibid p.12.

7 Ibid p. 13.

8 Ibid p. 13.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.