Competition Law Concerns Regarding Human Resources Practices

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Introduction

Pursuant to Article 2 of the Law on Protection of Competition (“Law No. 4054”), “all agreements, decisions and practices that prevent, distort or restrict competition between any undertakings operating in, or affecting markets for, goods and services within the borders of the Republic of Turkey; abuse of dominance by dominant undertakings in the market; any kind of legal transactions and behaviors that are in the nature of mergers and acquisitions, and which may significantly decrease competition; and transactions concerning the measures, observations, regulations and supervisions aimed at the protection of competition,” are within the scope of Law No. 4054. Under the succeeding provision, which is Article 3, terms and concepts are defined for the purposes of the implementation of Law No. 4054, and the grounds for this article clearly stipulate that while intellectual or physical activities, or activities, which concern both, and are undertaken for a price or benefit, are defined as service. In its largest sense, the definition also includes banking, insurance, money, credit, capital, knowledge and the other elements. Having said that, the same grounds for the same Article also stipulate that “The labor market, where the principle of collective bargaining is accepted, is not included in this definition.” However, the principle of collective bargaining is interpreted as referring to unionization. To that end, in light of past and recent decisions of the Competition Board (“Board”), it is clear that the Competition Authority (“Authority”) considers labor markets within the scope of Law No. 4054.

Competitive Concerns in Labor Markets

Recently, a full-fledged investigation was initiated against 32 undertakings concerning gentlemen’s agreements in the labor markets (“Labor Markets Investigation”). In the announcement regarding the initiation of the investigation, the Authority stated that the market power of employers regarding the labor markets in recent years has led to a decrease or suppression of employees’ wages, and working conditions remain below competitive levels. Within this scope, it is also mentioned that the Authority considers the issues in the labor markets and the benefits of intervening in these issues with competition law instruments, and aims to preserve the competitive structure of the labor markets. However, it should also be mentioned that the Labor Markets Investigation is not the first case file where the Authority has examined human resources practices, such as wage fixing and non-poaching agreements.

When the past Board decisions that examine the issue are evaluated, it is clear that the Authority opines that the competition law aims to protect the buyers and sellers of labor services, just as it aims to protect the free market opportunities of the buyers and sellers of products.[1] There is also a prevailing view that wage fixing and non-poaching agreements between competitors have anti-competitive effects similar to horizontal market allocation agreements, and may indirectly lead to fixed wages by limiting the opportunities for employees to switch jobs in the labor market.[2] Labor is considered as one of the leading costs in the production process and in this context, labor is at the forefront of purchases made by undertakings in the production process. Therefore, it is possible to indirectly distort competition in the goods and services markets through actions and agreements in the labor market.

The natural consequence of these agreements is the limitation on employees’ mobility and the benefits gained by undertakings as a result of this limitation. Employees’ mobility can directly affect the way undertakings operate in the market and, therefore, their market power. As a result, through these agreements, undertakings are able to gain benefits by decreasing their employees’ mobility or suppressing their wages. Through aiming to create a monopsony on the purchasing side of the labor markets, wage fixing agreements between competitors can also reduce the labor costs of the undertakings that are party to the agreement;[3] whereas, non-poaching agreements limit the employees’ opportunities to switch jobs that have higher wages and, thus, suppress an increase in their salaries over a period of time. With these features, the relevant agreements are considered no different from cartels on the buying side of the market by the Authority.[4] It is also underlined in Board decisions that wage-fixing agreements constitute determining purchase prices that clearly aim to prevent competition[5] and that these agreements are no different from price fixing agreements; whereas, non-poaching agreements are no different from customer or market allocation agreements.[6]

In the Özel Okullar Birliği decision, where the issue was examined in detail, the Board evaluated the practices that forbid offers of transfer to teachers between private schools.[7] It was decided that these practices were within the scope of Article 4 of Law No. 4054 and could not benefit from individual exemption, since they were harmful to both consumers and the teachers working in these schools.[8] Similarly, in the BFIT decision, provisions stating that any employees who are employed or were formerly employed by the BFİT or another BFİT franchisee, or who have worked in competitor companies, could not be employed without the prior written approval of the BFİT has been evaluated. In this regard, it was decided that the provision was within the scope of Article 4 of Law No. 4054 and could not benefit from individual exemption, since it restricted competition more than necessary in the labor markets. Consequently, it was concluded that the duration of the relevant provision should be limited with the agreements’ period, the reason for the written approval must be clearly stated, and an opinion pursuant to Article 9/3 of Law No. 4054 must be sent.

Whether the relevant practices lead to a decrease in the quality of the products produced, or the services offered, is also a controversial issue. The more popular opinion suggests that as a result of suppression of wages for employees, labor supply along with production or service delivery may decrease, causing an increase in prices.[9]

To conclude, due to the reasons, above, the Authority deems that it has the jurisdiction to evaluate wage fixing and non-poaching agreements within the labor markets, and to subject them to investigations.

Conclusion

It is clear that the Authority examines certain agreements in the labor markets within the scope of Law No. 4054. Popular opinion exists that where wage fixing agreements are executed between competitors, they become a structure similar to that of cartels on the buying side; whereas, non-poaching agreements lead to restriction of employees’ mobility and, therefore, allow the undertakings to benefit. The fact that the relevant agreements do not benefit consumers in any way and, therefore, cannot benefit from individual exemption under Article 5 of Law No. 4054 is also another point often noted in Board decisions.

(Authored by Merve Bakirci and first published by Erdem & Erdem on July 2021)


[1] The Board’s İzmir Konteyner decision dated 02.01.2020 and numbered 20-01/3-2.

[2] The Board’s Bfit decision dated 07.02.2019 and numbered 19-06/64-27.

[3] The Board’s Bfit decision dated 07.02.2019 and numbered 19-06/64-27, para 45.

[4] The Board’s İzmir Konteyner decision dated 02.01.2020 and numbered 20-01/3-2, para 32.

[5] The Board’s Dizi Oyuncuları decision dated 28.07.2005 and numbered 05-49/710-195.

[6] The Board’s İzmir Konteyner decision dated 02.01.2020 and numbered 20-01/3-2.

[7]The Board’s Özel Okulları Birliği decision dated 03.03.2011 and numbered 11-12/226-76.

[8]The Board’s Özel Okulları Birliği decision dated 03.03.2011 and numbered 11-12/226-76.

[9]The Board’s İzmir Konteyner decision dated 02.01.2020 and numbered 20-01/3-2, para 31.

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