European Commission Competition Policy Brief on Labour Markets as of 2 May 2024 sheds light on the dos and don’ts in non-solicitation (no-poach) arrangements

European Commission Competition Policy Brief on Labour Markets as of 2 May 2024 sheds light on the dos and don’ts in non-solicitation (no-poach) arrangements

Non-solicitation (no-poach) arrangements may restrict competition between employers, lowering productivity and salaries, restricting expansion or entry of competitors, hindering innovation and even increasing consumer prices. We have outlined those aspects of the non-solicitation arrangements in our previous article on this topic Bulgaria: Non-Solicitation Clauses in Commercial Contracts.

Non-solicitation arrangements are widely used in Bulgaria in industries in which recruitment costs are high and/or serious investment in training new employees is required. The Bulgarian Competition Protection Commission, unlike other competition authorities in the EU, has not yet issued decisions on the impact of non-solicitation arrangements on the labour market, although this matter was part of its priorities for 2023. Non-solicitation arrangements have been more typically analyzed so far by the Bulgarian Competition Protection Commission in the context of ancillary restraints in M&A transactions.

Тhe new Competition Policy Brief on Labour Markets of the European Commission issued on 2 May 2024 (“Policy Brief”) provides a framework for the assessment of non-solicitation arrangements which will be followed by the Bulgarian Competition Protection Commission, so businesses should be prepared to structure their relations with vendors, clients and partners without risking serious administrative fines (up to 10% of the last year’s turnover) and invalidity of the non-solicitation arrangements. We provide here a checklist of the main dos and don’ts in this respect according to the Policy Brief.

Before entering into a non-solicitation agreement, it should be considered:

1. Whether the nature of the relation with the counterparty and the characteristics of the market involve a risk which needs to be mitigated through the non-solicitation arrangement, e.g. the risk of:

  • losing the investment made in training the relevant employees;
  • losing possible non-patent IP rights, such as trade secrets, developed by or learned by the relevant employees;
  • being unable to fulfil the obligations under the main transaction due to the lack of personnel;

2. Whether there are alternative means of mitigating the identified risks, e.g. non-disclosure agreements or other confidentiality arrangements, possible obligations on the employees to reimburse proportionate training costs, statutory means for protection of IP rights, etc.

In case a non-solicitation arrangement is reasonably required, then the scope of such arrangement should be:

  • strictly limited to the employees directly involved in the performance of the relationship. It should not cover all employees of the parties or the party imposing the non-solicitation obligation;
  • made only for a justifiable duration (whereas no specific guidance is provided in the Policy Brief in this respect, but the assessment can be expected to depend on the characteristics of the market and the investments required to compensate the loss of the respective employee); and
  • covering an adequately limited territorial scope.

Apart from the specifics set out in the Policy Brief, the manner in which compliance with the non-solicitation arrangement is ensured and whether the arrangement is mutual or one-sided may also affect the assessment of the competition authority.

Non-solicitation arrangements can be reviewed by the competition authority not only in a separate investigation but also as a part of an investigation of other violations. In view of the serious sanctions associated with competition law violations, it is advisable that businesses review their existing commercial contracts, general terms and model vendor, customer and partner agreements to eliminate unnecessary non-solicitation arrangements and to limit their scope as justifiable under the relevant circumstances.

For further information contact:
Iva Georgieva, Managing Associate