The Private Law Implications of Gentlemen’s Agreements in Labour Markets
Introduction
Competition law enforcement in labour markets has significantly affected the way undertakings and their human resources departments conduct their business. Recent decisions of the Turkish Competition Board (“Board”) demonstrate that concerns relating to labour markets have become increasingly prominent, while also showing that labour market-related concerns can readily be incorporated into ongoing sectoral investigations. As reflected in the Board’s decisions, gentlemen’s agreements between employers not to solicit or hire each other’s employees, collaborations aimed at determining wages or fringe benefits, or exchanges of competitively sensitive information regarding employment conditions are subject to close scrutiny and may result in substantial administrative fines. On the other hand, in addition to being subject to administrative fines due to anti-competitive conduct, employers may also face various forms of liability under private law as a consequence of such conduct. This article examines the liability for damages that may arise from competition law infringements in labour markets.
The Nature of Gentleman’s Agreements in Labour Markets
Wages and other working conditions provided by employers in return for the labour performed by employees under their employment contracts are regarded as a cost component constituting the purchase price and/or as a purchasing condition within the scope of Article 4 of the Law No. 4054 on the Protection of Competition (“Law No. 4054” or the “Law”)[1]. On this basis, agreements concerning the determination of wages and other working conditions constitute competition law infringements that are deemed unlawful and prohibited by object under the same provision of Law No. 4054[2]. In this context, the Turkish Competition Authority considers wage-fixing agreements that constitute infringements by object to be cartels[3], and the Board’s decisions further reinforce this approach.
Similarly, no-poach agreements are assessed within the same framework as supplier/customer allocation agreements and are likewise regarded as cartels[4]. Indeed, the Board considers agreements not to solicit or hire each other’s employees to constitute employee allocation, as employees are suppliers of labour, which is a key input on the purchasing side of the labour market for the provision of the final product or service, and accordingly concludes that such agreements amount to cartels.[5]. Likewise, in its decisions, the Board has established that gentlemen’s agreements between competitors aimed at preventing the transfer of employees infringe Article 4 of Law No. 4054 by object[6].
Do Gentleman’s Agreements in Labour Markets Give Rise to Liability for Damages?
Liability arising from infringements of competition law is recognised in both legal scholarship and judicial decisions as a form of tort liability. The constituent elements of tort liability arising from competition law infringements are principally determined through the combined application of Law No. 4054 and the tort provisions of the Turkish Code of Obligations No. 6098 (“TCO”). In the context of tort liability, since Law No. 4054 constitutes a special law in relation to the TCO, it is applied in the first instance to claims for damages arising from competition law infringements[7].
Under Turkish law, the essential elements of tort liability arising from a competition law infringement are: the existence of an unlawful competition law infringement, the occurrence of damage, the existence of an adequate causal link between the infringement and the damage, and fault on the part of the undertaking committing the infringement.
Accordingly, for liability for damages to arise in relation to competition law infringements in labour markets, it must be clearly established that each of these four elements is satisfied.
Are the Requirements for Tort Liability Satisfied?
Unlawfulness and Fault
Under Turkish law, although the existence of an infringement decision issued by the Board is not a prerequisite for bringing an action for damages arising from a competition law infringement, in practice, Board decisions are regarded as the strongest evidence for proving the existence of the infringement.
In addition, it is clear that gentlemen’s agreements constituting cartels amount to a competition law infringement that satisfies the element of unlawfulness. Likewise, in the case of gentlemen’s agreements that constitute an infringement by object, it is possible to establish that the undertakings acted with fault.
Although the elements of unlawfulness and fault can be established relatively easily in relation to gentlemen’s agreements in labour markets, the main issue in terms of liability for damages centres on establishing the existence and extent of the damage, as well as the causal link between the infringement and the damage.
Persons Suffering Damage, Proof of Damage, and the Adequate Causal Link Between the Infringement and the Damage
Pursuant to Article 57 of Law No. 4054, any person who prevents, distorts or restricts competition through any practice, decision, contract or agreement contrary to the Law is obliged to compensate all damages suffered by those who incur damage as a result thereof; where the damage arises as a result of the conduct of more than one person, such persons shall be jointly and severally liable for the damage.
The concepts of “damage” and “persons suffering damage” referred to in Article 57, which governs the right to claim damages, are not defined under the Law. Furthermore, the term “persons suffering damage” is not limited solely to competing undertakings. Accordingly, there is no obstacle to employees being regarded as persons suffering damage where undertakings restrict competition in labour markets. Indeed, in the case of infringements concerning no-poach agreements, wage-fixing and the determination of other working conditions, employees are the parties directly and primarily affected by the infringement.
The Board states that agreements aimed at restricting competition in labour markets, under which undertakings mutually agree not to compete for labour input, such as through no-poach arrangements, produce adverse effects both in the labour market and in the markets for final products[8]. Although it may be difficult to measure the effects of such agreements in the markets for final products, it may nevertheless be possible to assert the damage suffered directly by employees in the labour market.
Looking at specific examples, the evidence encountered in the Board’s decisions concerning labour markets includes instances where the undertaking to which the employee intended to move was “off limits”; candidates were informed that no interview could be conducted because of a gentlemen’s agreement; applications were excluded from the recruitment process on the grounds of such a gentlemen’s agreement; candidates were removed from the recruitment process at the later stages of interviews due to the gentlemen’s agreement; and certain candidates, despite being aware of the gentlemen’s agreement, nevertheless attempted to pursue their applications. The range of such examples may also expand in practice. In such cases, an employee may claim that, had they been able to change employers, they would have been entitled to receive a particular salary, bonus and fringe benefits, but were deprived of those entitlements as a result of the relevant gentlemen’s agreement.
Compensation for Damage
Article 58 – Persons who suffer damage as a result of the prevention, distortion or restriction of competition may claim, as damages, the difference between the price they paid and the price they would have paid had competition not been restricted. Competing undertakings affected by the restriction of competition may claim compensation for all damages from the undertaking or undertakings that restricted competition. In determining the amount of damages, all profits that the injured undertakings expected to earn shall be taken into account, together with the balance sheets for previous years.
If the damage arises from an agreement or decision of the parties, or from gross negligence, the judge may, upon the request of the persons suffering damage, award compensation up to three times the amount of the material damage incurred or the profits gained or likely to be gained by those who caused the damage.
The scope of compensation is not limited to actual loss but also extends to losses arising from lost opportunities. Under Article 58 of Law No. 4054, damage is defined as the difference between the amount that would have been paid had competition not been restricted and the amount actually paid. When this provision is interpreted in the context of labour markets, the amount paid may be understood as the opportunities of which the injured parties were deprived as a result of the gentleman’s agreement. Furthermore, pursuant to Article 58 of the Law, where the damage arises from an agreement or decision of the parties, or from cases involving gross negligence, the court may, upon the request of the persons suffering damage, award compensation of up to three times either the actual pecuniary damage sustained or the profits obtained, or likely to be obtained, by those responsible for causing the damage.
In Turkish law of obligations, loss of profit refers to the loss of an opportunity for an increase in one’s assets[9]. Accordingly, an employee claiming to have suffered damage must first establish, with a high degree of probability, that, absent the competition law infringement, they would have earned a higher salary under normal market conditions, secured employment offering more favourable working conditions, or benefited from a salary increase. The employee must then demonstrate, considering the specific circumstances of the case, that the unrealised economic benefit resulted from the gentleman’s agreement in the labour market, in other words, that there is an adequate causal link between the infringement and the damage.
However, establishing these conditions is not straightforward in every individual case. In certain circumstances, the recruitment process may never commence due to a gentleman’s agreement. In such cases, it is relatively more difficult to demonstrate that the individual was deprived of a legal right as a result of the infringement. Nevertheless, where an employee has made concrete progress in a recruitment process and is able to establish that, but for the gentleman’s agreement, they would, with a high degree of probability, have been appointed to the relevant position, there is no obstacle to pursuing a claim for damages to the extent that the employee can demonstrate that they were deprived of more favourable remuneration and working conditions as a result of the infringement.
Evidence and the Burden of Proof
There is no restriction on the types of evidence that may be relied upon to prove a competition law infringement. Pursuant to Article 59 of the Law, an employee may rely on any form of evidence. In practice, one of the most significant pieces of evidence demonstrating the existence of a gentleman’s agreement in labour markets is a decision of the Board establishing the infringement. In addition, minutes of human resources meetings indicating that decisions on salary increases were taken jointly, as well as econometric and statistical analyses based on wage benchmarking, may also acquire evidentiary value when supported by expert reports. On the other hand, it should be emphasised that, in each individual case, the employee must substantiate the damage suffered on an individual basis. Although the existence of a Board decision facilitates proof of the infringement, the employee must nevertheless demonstrate, in their specific circumstances, the opportunity of which they were deprived and the extent of the resulting loss.
Furthermore, pursuant to Article 50/2 of the TCO, where the amount of damage cannot be established with precision, the judge may make an equitable assessment based on the ordinary course of events, thereby partially alleviating the difficulty of proving claims for loss of profit.
Nevertheless, even the reliable calculation of the loss suffered by an individual first requires the existence of a competitive labour market. This is because the salary, fringe benefits and other working conditions that an employee could have obtained had the competition law infringement not occurred can only be determined by reference to comparable wage levels prevailing under competitive market conditions. However, where the labour market has artificially acquired the characteristics of a monopsony, employers’ purchasing power has become concentrated, and wage offers are shaped through coordination or market power rather than competitive processes, there is no longer a genuine market value that can serve as a benchmark. In such a market, the absence of competition-driven diversity among different human resources policies, remuneration models or fringe benefit packages also makes it considerably more difficult to determine, on a comparative basis, the economic position in which the employee suffering the damage would have been.
Conclusion
Gentlemen’s agreements in labour markets have become an emerging area of competition law infringements in which enforcement has intensified rapidly. The Board’s decisions demonstrate that such agreements directly affect not only competition between undertakings but also employees’ wages, career opportunities and ability to change jobs.
Since the term “persons suffering damage” set out in Article 57 of Law No. 4054 also encompasses employees, it may be argued that there is no legal obstacle to claiming compensation, including up to three times the amount of the damage, in respect of losses arising from gentlemen’s agreements. On the other hand, the principal challenge in actions for damages lies in linking the competition law infringement established by the Board’s decision to the claimant’s individual loss. Accordingly, the employee must demonstrate, with concrete evidence, the extent of the economic benefit of which they were deprived.
In conclusion, although individual claims for damages arising from gentlemen’s agreements in labour markets present significant evidential challenges, they nevertheless constitute claims that may be asserted under the existing legal framework.
- Guidelines on Competition Infringements in Labour Markets, p. 6.
- Guidelines on Competition Infringements in Labour Markets, p. 6.
- Guidelines on Competition Infringements in Labour Markets, p. 6.
- Guidelines on Competition Infringements in Labour Markets, p. 7.
- Turkish Competition Board, decision dated 30.12.2021 and numbered 21-67/92-448.
- Turkish Competition Board, decision dated 24.02.2022 and numbered 22-10/152-62.
- Kesici, Buğra, Rekabet Hukukunun İhlalinden Kaynaklanan Haksız Fiil Sorumluluğu, p. 22.
- Turkish Competition Board, decision dated 24.02.2022 and numbered 22-10/152-62.
- Oğuzman, M.K./Öz, T., Borçlar Hukuku Genel Hükümler, 2006, p. 343.
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