Speech: Labor markets, competition law’s long neglected corner

Labor markets, competition law’s long neglected corner

Summary

After marital contracts, labor contracts are probably the most important contracts people enter into in their lives. They form the engine behind the demand side of the economy. When you look at it from such a perspective, it is surprising that labor markets did not come to the attention of competition authorities, at least the EU ones, until very recently. ACM’s more recent interest in labor markets started with guidelines in which we described under what circumstances self-employed workers can jointly negotiate fees. But we also looked at the employer’s side of the market to protect employees against anti-competitive practices that would harm them. We reviewed a merger that possibly led to buying power on the market for journalist services but we did not find any. We intervened when a chairman of a trade association publicly called on its members to stop hiring employees from other members. He rectified his statement. We intervened when a few companies that were not competing on a downstream market discussed a non-hiring agreement to solve labor shortages. They took appropriate compliance measures. And finally, we launched an investigation into collusion between supermarkets following the collapse of collective negotiations between unions and supermarket employers. After the collapse, it seemed that the supermarkets agreed on and implemented a wage increase cap, which reduced competition on the labor market. A few months after we had launched the investigation, the supermarkets and the unions came to a collective agreement, and we decided to drop the case for reasons of prioritization. This soft approach has created awareness among companies, their advisors, and among unions who now know how to find us. ACM will remain vigilant in this area.

(Speech given by Martijn Snoep at the New Frontiers of Antitrust Conference organized by Concurrences in Paris, 21 June)

Ladies and Gentlemen,

After marital contracts, labor contracts are probably the most important contracts people enter into in their lives. They form the engine behind the demand side of the economy. Labor contracts provide the most important source of income for consumers to spend. But labor contracts provide more than just a financial income for workers. They can also provide workers an opportunity to develop new skills that add more value to the economy. And labor contracts can provide workers a non-financial return such as pride, a sense of belonging, and self-realization, which also add to the general well-being of a country.

When you look at it from such a perspective, it is surprising that labor markets did not come to the attention of competition authorities, at least the EU ones, until very recently.

Labor contracts are entered into between two parties on markets with buyers and sellers with only limited government intervention. There is a floor price (minimum wage) and some output restrictions (labor protection rules and entry qualifications for some jobs), but, other than that, the laws of supply and demand determine the outcomes.

The buyers of labor tend to be “undertakings” within the meaning of EU competition law and EU-inspired national competition laws. These undertakings compete on the demand side of the labor market, and can therefore restrict input competition by colluding with their competitors or as a result of a merger. In addition, at least in theory, behavior of dominant companies may constitute an exploitative or exclusionary abuse of such positions.

The sellers on labor markets are predominantly workers, not being undertakings. Therefore, competition laws do not apply if they were to collude on prices and output. There is, however, a growing group of workers that do qualify as undertakings. It started with the professions (lawyers, doctors, etc.), professional athletes, and freelance artists, architects and journalists, But now there is a rapidly growing class of self-employed workers (also called independent contractors), due to a combination of employers wishing to circumvent labor protection laws, and workers wishing to benefit from tax breaks and social-security loopholes. These can be food and package deliverers, taxi drivers, order pickers, carpenters, and even nurses and teachers. In the Netherlands alone, over 1 million self-employed workers are active. That is roughly 12% of all workers in the country.

Many of these self-employed workers are undertakings within the meaning of EU competition law.  Therefore, collusion on prices and output would be illegal. The full set of competition law no-no’s applies to this group, although not everyone realizes this, as enforcement levels have been low throughout the EU.

One important reason why the Commission’s level of competition law enforcement in labor markets is low is probably that labor markets tend to be, at most, national in terms of scope, with very limited effects on trade between Member States. That is why issues of labor and EU competition law have mostly come up as a result of preliminary ECJ judgments following a request from national courts. Think of the qualification of collective bargaining agreements between groups of employers and unions, and the identification of workers that are falsely qualified as self-employed and that should be treated as workers, not as undertakings.

But that should not be a justification for national competition authorities to follow the Commission’s example. The beauty of our polycentric model of competition-law enforcement in the EU is that national authorities can set their own priorities in applying EU and EU-inspired national competition law. The Commission, ECN, and ultimately the ECJ will act as guardians of a uniform application throughout the EU. It is this polycentric model that provides for a faster development of the law in all corners of the economy than we have ever seen before. The national authorities and private enforcement are the drivers of this development.

There are four areas where competition authorities should be particularly vigilant about anti-competitive practices: 1) wage cartels by employers, 2) non-hiring/non-poach cartels by employers, 3) mergers leading to employer monopsony, and 4) wage cartels between self-employed workers.

First, higher raw-material costs and inflationary pressure may lead to employers collectively trying to suppress wages or other labor conditions. Wage cartels would distort the well-functioning of the labor market. The fact that cost-price benefits achieved through collusion will, at least in theory, be passed on to consumers in a competitive market does not justify ignoring these types of cartels. Competition authorities do not have a mandate to redistribute income from workers to consumers through collusion leading to market power on a purchasing market.  

Second, particularly in areas with labor shortages, employers may be tempted to enter into non-hiring or non-poaching arrangements. Such labor-market-sharing arrangements distort competition, harm workers in improving their incomes, skills and job satisfaction, and disincentivize employers to improve labor conditions and efficiency. A good reason for competition authorities to enforce in this area too.

Third, mergers leading to monopsonies on labor markets are perhaps even more harming than collusion, as they create stable market power and cannot be dissolved. A monopsony in labor markets, although rare, has the same effect as a cartel has on wages and other labor conditions. All the more reason for competition authorities to prevent such mergers from happening.

The fourth and final type of practice for competition authorities to get involved in is on the supply side of the labor market. Collusion between self-employed workers to improve their incomes and other labor conditions constitutes a cartel. But in this area, like in all areas of the application of competition law, context is important. Are the self-employed workers real undertakings within the meaning of EU competition law or are they gig workers with hardly any autonomy that should be compared to workers protected by labor laws? Are the self-employed workers only colluding to achieve a living wage and the most basic labor conditions, or are the workers self-employed professionals colluding to improve their fees even further? Context matters.

In this context, some have suggested that the “consumer welfare standard” stands in the way of competition enforcement against practices on the demand side of the labor market. The reason is that consumers will benefit from a lower cost price for labor as such savings will be passed on in a competitive downstream market. That is incorrect. Regardless whether the passing-on is actual and not only theoretical,  the argument is based on the wrong premise that the goal of EU competition law is consumer welfare. There is no legal basis for this premise. EU competition law is about the protection of the competitive process and the structure of the market for the goals set out in Article 3 of the Lisbon Treaty. Consumer welfare, within the meaning of US competition law, is not one of them. This also explains that, as the Court of Justice has repeatedly decided, the creation of an internal market is one of the goals of competition law. It also explains why fairness plays an important role in the application of Articles 101 (3) and 102 (a) TFEU.

The Dutch competition authority (ACM and its legal predecessor NMa) has had a limited track record in the area of labor contracts. Its more recent interest started with a debate on the protection of gig workers a few years ago. There was a widespread call for statutory minimum fees for gig workers so that they could earn a living wage, pay for disability insurance, and save for their retirements. Collective agreements by self-employed workers to achieve these goals, with or without the help of unions, were thought to be anti-competitive. It came as a surprise that more was possible than previously thought when we issued guidelines on the criteria in what circumstances self-employed workers are considered employees, and when we emphasized that we would use our discretionary power not to enforce competition laws against self-employed workers that collectively negotiate a living wage and other basic labor conditions.

But looking at the supply side of the market made us realize that we need to look at the demand side as well. In the context of a merger assessment involving a newspaper and a magazine publisher, we developed a theory of harm that the merging parties would obtain market power on the demand side of the market for journalist services, and could decrease wages and labor conditions. We did not find any market power.

And finally, we looked at three cases of collusion. The first was a case when the chairman of a trade association publicly called on its members to stop poaching or hiring employees from other members. After giving him a call, he immediately rectified his comment publicly, also stressing the importance that modern companies invest in their workers rather than agree not to hire each other’s employees. In the second case, we intervened after we had received tips that the HR managers of several companies, which were not competing on the downstream market but only on the upstream labor market, discussed a non-hiring agreement to solve labor shortages in the technical engineering sector. And finally, we launched an investigation into collusion between supermarkets following the collapse of collective negotiations between unions and supermarkets. After the collapse, it looked like the supermarkets had colluded and implemented a wage increase cap. A few months after we had launched the investigation, the supermarkets and the unions came to a collective agreement, and we decided to drop the case for reasons of prioritization. This approach (some may call it a soft approach) has created awareness among companies, their advisors, and among unions who now know how to find us, and that we play a role in protecting workers against market power. ACM will remain vigilant in this area.