Belgium: Non-solicitation Agreements between Companies might Violate Competition Law
The Belgian Competition Authority (BCA) has sanctioned Securitas, G4S and Seris for various malpractices in the private security sector. The reasons include price-fixing, bid rigging, as well as “no-poach” or “non-solicitation” agreements, all in the period of 2008 to 2020. According to the BCA, these practices prevented or restricted healthy competition between companies and go against Article IV.1 of the Code of Economic Law. The BCA imposed fines of over 47 million euros on the companies concerned.
- What is the impact of no-poach agreements on employment law in this case?
In this case, the no-poach agreement is a secret agreement between companies not to compete for each other’s employees, i.e., a no-hire agreement. In a healthy and well-functioning labour market, employers compete for workers and entice them to switch employers. The non-poach agreement affects an employee’s ability (or freedom) to move from one company to another. In contrast, the companies themselves benefit from it since it minimizes the risk that they will lose employees. In this agreement, employers do not compete for workers, so they do not need to offer higher wages or offer amenities that would benefit the worker. In addition, the companies all applied the minimum hourly rates of the sector for the services of their security guards. They were able to do so because they knew that their main competition would not poach them with higher wages. To safeguard the normal competitiveness of the labour market, workers must have the freedom to quit and move to more competing employers if their current employer does not pay them a competitive wage.
However, one has to bear in mind that some non-solicitation clauses are valid when they are drafted in a way that competition is minimally restricted. Belgian courts always have the authority to mitigate or declare void the relevant clause in the event of abuse of law. In this specific case, the workers themselves are unknowingly restricted by this secret agreement for an undetermined period by not being offered better employment terms. It renders their career stagnant and stifles any competition.
- What is the impact of this case on non-solicitation clauses in service agreements (e.g., for consultancy)?
Consultants are often sent by their employer, a consultancy firm, to clients to deliver services. Often, the service agreement between the consultancy firm and the client includes a non-solicitation clause to protect the company’s assets, which are essentially the consultants, for whom the firm invested time and money to recruit and employ them. Contractors, like consultancy firms, want to avoid poaching employees. Such “no-poach” clauses need to be tailored to the circumstances. To be enforceable, it cannot impose an excessive restriction on the competition in the market. It needs to protect only legitimate business interests. For example, prohibiting the recruitment of a consultant for an indefinite period of time could be seen as disproportionate. The enforceability of the clause should be limited in time (e.g., until 6 months after the end of the project) and/or recruitment can be made possible in return for a payment of a certain amount of money. As long as these clauses remain proportionate, there does not seem to be a real negative effect on free competition. But the question remains: where is the line between a proportionate and disproportionate clause? Factors like the price of the service, the duration of the project, the importance of the service, the recruitment costs made by the consultancy firm, etc. should be considered. It is also recommended to always be transparent about such non-solicitation agreements, so the subject (the consultant) is well aware of their existence.
