In October the Regional Court in Brno (Court) issued another judgment in which it reviewed the legality of an unannounced on-site inspection by the Office for the Protection of Competition (Office). This is the first time the Court has ruled on an inspection concerning a no-poach agreement between employers (we have written in more detail about these agreements, e.g. here – in Czech). The on-site inspection by the Office was triggered by an anonymous complaint from a dissatisfied employee.
What happened?
An employee informed the Office by telephone about the existence of a no-poach agreement concluded between his employer and the other company in whose newly opened logistics complex these employees worked. He said that some of the employees had tried to switch but had been prevented from doing so.
The informing employee wished to remain anonymous. However, the Office had contact details, assumingly for his mobile phone. A representative of the Office contacted him and asked him to send an anonymised employment contract, which he in turn promptly did.
The Office then simply verified the approximate location of those employers from public sources and conducted two on-site inspections. During those inspections, it obtained documents which, in its opinion, justified the initiation of sanction proceedings. The complainant's employer was convinced that the on-site inspection had been conducted in violation of the law and challenged it before the Court. He pointed to the anonymous nature of the complaint and the fact that the Office had not sufficiently verified vague and unsubstantiated information from the alleged employee.
What did the county court say?
The Court has confirmed that non-poach agreements can be investigated using unannounced inspections. Anticompetitive agreements include those on the demand side of the market as they reduce competition for inputs necessary to produce goods or provide services. These include no-poach agreements, i.e. agreements where employers enter a kind of no-strike pact instead of competing for employees. These agreements can also be concluded between employers who are not competitors (not offering the same goods or services) but who compete for the same employees. This was also the case here: one of the companies was a freight carrier and the other supplied parts to the automotive industry.
The Court agreed with the Office that the agreements were agreements to share markets and resources, i.e. purchasing cartels. The use of on-site inspections as a tool to secure evidence was therefore legitimate.
The Court also assessed the appropriateness of the on-site inspection in the light of the specific circumstances of the case, in particular the information available to the Office prior to the inspection. Here again, the Court pointed to the specific nature of no-poach agreements. According to the Court anonymous submissions will often be the primary source of information in such cases. Typically, in a situation where the complainant will be an employee of one of the undertakings that has entered into such an agreement. The disclosure of the employee‘s identity would significantly affect his or her chances in the labour market.
The Court confirmed that, in the circumstances of this case, the anonymous complaint was sufficient primary basis for an on-site inspection. Although the complaint was anonymous, "the identity of the informant was identified as to his position as the employee in question." This addressed concerns that the complaint could have been used as a weapon by a competitor. In this respect, the facts differed from previous cases in which the court had emphasized the need for additional verification of (even non-anonymous) complaints.
The Court concluded that where submissions by third parties (i.e., not just employees) contain clear, specific and sufficient indications of anticompetitive conduct and its type and content, "the defendant (the Office) is not required to procure additional information from other, in most cases less informative, sources in order to initiate an on-site inspection."
Requiring further investigation would make the on-site inspection an unnecessary step, according to Court. Moreover, it could alert the companies to the inspection, which could lead to the concealment or destruction of evidence
Is there any reason to worry?
Yes. The Court's ruling gives the Office a powerful tool for investigating agreements between employers. All that is needed is a phone call from the alleged employee, who can remain anonymous, and an anonymised document demonstrating his or her employment. Such a person need only to describe the anti-competitive agreement between the employers - even if it does not exist - in sufficient detail to trigger an on-site inspection.
Moreover, the reasoning suggests that the Office could rely on anonymous submissions also in other cases without the need for additional verification as to the substance of the alleged anti-competitive conduct. The Court is not just talking about employees, but third parties in general. Nevertheless, we are convinced that the relevant passage of the reasoning must be interpreted in the context of the specific circumstances of the case. It is the fact that in this case, the Office was in telephone contact with the anonymous person and verified his position (although the information came from the same source, it consisted of an employment contract, presumably with the employer's signature)
What can be done?
In any event, we expect further investigations by the Office into agreements between employers. It will take little to start an on-site inspection. It is therefore advisable for employers to consider the following measures:
- Verify that you have an effective and regularly updated compliance program and whistleblowing tool in place. Such measures will allow employees to express their dissatisfaction within the company and, in turn, allow the company to identify and address problems before the visit of the Office.
- Check your agreements with other companies regarding the use of your employees to make sure they do not contain problematic restrictions. Some ways of protecting your own employees may be legitimate and legal, others may be problematic.
- Provide your key employees with training on competition law with a focus on agreements between employers.
The competition team at Havel & Partners has 15 years of experience in providing services in the areas of competition compliance, whistleblowing and on-site inspections. We can also quickly assess the risks associated with employment arrangements. You can contact us and avoid unpleasant surprises from a competition authority.
