Non-poaching and wage-fixing agreements could invoke sweep of anti-monopoly law
Arshad Paku Khan and Sakshi Agarwal

An emerging trend in global anti-monopoly regimes like that of the US is the potential illegality of agreements among employers relating to no poaching and wage-fixing. It is very likely these agreements will run afoul of India’s Competition Act, 2002. Employers should take great caution to avoid entering into such arrangements.

At its core, a no-poaching agreement is an agreement between employers not to compete for/hire each other’s employees. In addition, employers that enter into agreements to limit or fix the terms of employment, such as wages, salaries, benefits or job opportunities, can face significant issues under competition law.

For example, the United States Department of Justice is aggressively chasing such anti-competitive hiring and compensation agreements and, under certain circumstances, intends to criminally prosecute the firms. Notably, such agreements also likely fall afoul of Section 3 of the Competition Act as they eliminate competition by agreement of competitors (i.e., other employers).

Consider this: You are a senior officer at a top-notch tech company. You are at a trade association meeting, where you run into an ex-colleague, Dev. After the meeting, you start talking about issues that are currently affecting the industry. Dev states that high attrition rates have badly impacted the business and there are huge issues with the loss of intellectual property and trade secrets if you lose employees to competitors.

Dev has a great idea. Why don’t your company and his company agree not to hire from each other? This helps everyone.

Is this a problem?

It most certainly is. Dev is suggesting a no-poaching agreement. This is anti-competitive because it eliminates or, at the very least, reduces competition among employers. If you agree, you would be exposing yourself and your employer to substantial anti-monopoly liability. In the US, it might even result in a criminal prosecution of your company or yourself.

The applicability of anti-monopoly laws in the field of employment, hiring and compensation of employees, is increasingly gaining momentum. Such agreements might occur in industries and sectors requiring a skilled workforce, such as information technology, health, and legal services. Recently, several US civil lawsuits alleging no-poaching agreements have been settled by the likes of Adobe, Apple, Google, Intel, Intuit, and Pixar for a total of $415 million.

The US is at the forefront of this movement, and it is more than a theoretical possibility that the Competition Commission of India will also act upon these kinds of employer-to-employer arrangements. In 2016, the anti-monopoly agencies of the United States Department of Justice published a document called ‘Antitrust (anti-monopoly) Guidance for Human Resources Professionals’, to alert those involved in hiring and compensation decisions to potential anti-monopoly violations. It emphasises that firms competing to hire or retain employees would be competitors in the employment marketplace, regardless of whether they are engaged in the provision of similar goods or services or not, as long as they compete for the same employees. Agreements and information exchanges, directly or through third parties, among such employers may thus be anti-competitive and illegal.

Going by the United States Department of Justice’s guidance, if a person “agrees with individual(s) at another company about employee salary or other terms of compensation, either at a specific level or within a range (so-called wage-fixing agreements), or agrees with individual(s) at another company to refuse to solicit or hire that other company’s employees (so-called no-poaching agreements)”, it would amount to an anti-monopoly violation.

Keep in mind that it makes no difference if the agreement/arrangement is not in writing or a formal agreement. Indeed, even evidence of discussions, exchange of sensitive information and parallel behaviour may lead to an inference of an anti-competitive agreement. For example, periodic exchange of current wage details could lead to an anti-monopoly violation because such an exchange could decrease compensation. Such agreements eliminate competition in the same irretrievable way pacts to fix prices or allocate customers do.

Similarly, under the Competition Act, a no-poaching or wage-fixing agreement may amount to eliminating competition. The Competition Act provides an especially high penalty for cartels: a fine of up to three times the profit or 10% of the revenue of the firm for each year of continuation of the cartel, whichever is higher. If a company violates the Competition Act, then the Competition Commission of India is also empowered to impose penalty upon the company’s officers responsible for the breach.

Penalties may also be followed by third-party damages claims.

Significantly, a violation of the Competition Act could also have other serious repercussions. A fine exceeding Rs 1,000 may render a person ineligible for appointment as a managing or whole-time director or a manager of a company.

Companies and their officers need to know the high risks of even discussing arrangements to not to hire each other’s employees or fixing terms of compensation, much less entering into them. Human resources personnel and officials must critically assess their employment practices from an anti-monopoly perspective.

Arshad Paku Khan is executive director and Sakshi Agarwal is senior associate at law firm Khaitan & Co. Views are personal.

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