Labour market collusion: New frontier for antitrust?

By Lagna Panda and Ruchi Khanna, Chandhiok & Mahajan

Competition concerns and harm typically arise in the context of goods and services. However, these concerns can also arise in labour markets in case of collusion among competing employers, the anti-competitive effects of mergers and acquisitions, anti-competitive conduct by monopsonist employers, and non-compete agreements between employers and employees. With the recent movement of migrant labourers from their places of employment to their hometowns and the easing of labour law provisions by various state governments, some of these concerns, particularly labour market collusion, may now be more pressing. In fact, labour market collusion has been on the radar of US and various other competition authorities.

Lagna Panda
Managing Associate
Chandhiok & Mahajan

Forms of labour market collusion: Collusive conduct in labour markets can take various forms, with the most common being no-poach agreements entered into for reasons such as reducing employee mobility and expenditure on personnel. Similar to market allocation agreements, such agreements allocate employees and reduce or eliminate competition among employers for labour. Collusion could also include wage-fixing agreements between employers to increase wages by an agreed percentage to maintain or lower wages, or to fix other employment terms. The exchange of labour market-sensitive information such as wages, salaries, perks, bonuses, benefits and terms of employment could also infringe competition law.

Ruchi Khanna
Chandhiok & Mahajan

The harmful effects of reduced competition among employers could be in the form of low labour mobility, lack of alternative job opportunities, depressed wages, poor working conditions and limited bargaining power.

Position in the US: The Department of Justice (DOJ) and the Federal Trade Commission (FTC) have taken a proactive approach by publishing guidance on how competition law would apply to labour markets. Their joint guidance in 2016 highlighted the importance of independent decision-making in deciding terms of employment and the significant role that human resource professionals play in the conduct of enterprises in labour markets. The guidance states that naked wage-fixing and no-poach agreements among employers, are illegal, and attract criminal liability. In United States v eBay, Inc. the district court ruled that the alleged no-poach restraint was “a ‘classic’ horizontal market division” and that “antitrust law does not treat employment markets differently from other markets in this respect.”

The DOJ and the FTC have launched investigations into various labour markets such as healthcare, technology, ecommerce, fashion, railways and film sectors. There have been a high number of investigations into and private action claims against franchise agreements containing restrictive covenants against employees in the fast-food, automotive and fitness sectors. Over 65 businesses have agreed to eliminate no-poach provisions from their franchise agreements.

Position in India: No-poach agreements, wage-fixing and other forms of labour market collusion would fall within the provisions of Section 3(3) of the Competition Act, 2002. Labour market collusion can also include employing or boycotting particular categories of labour as was the case in the Kerala Movie Industry decision. However, assessing a labour market agreement would involve different considerations from those in agreements dealing with products and services.

First, defining a labour market for assessing an agreement or collusive conduct, would be different from how a product market is defined. The former would account for factors such as workers’ skills, the price paid for labour and other non-price factors. Second, factors for determining competitors, evaluating actual and potential anticompetitive effects and developing theories of harm for such markets would also require a different approach. Last, while several antitrust regulators have acted on the belief that the standard for competition law enforcement should be the consumer welfare standard, labour markets would require a different benchmark that is based on the welfare of labour.

As on date, the Competition Commission of India has not initiated any inquiry on labour market collusion. However, there has been growing interest among antitrust authorities worldwide in applying competition laws to labour markets and India may not be far behind. In the face of the COVID-19 pandemic where revenues are declining and liabilities are mounting, employment issues are likely to come to the forefront with enterprises seeking to streamline their workforces. For businesses to remain competitive in labour markets, enterprises and their human resource professionals must ensure that their employment practices comply with competition laws.

Lagna Panda is a managing associate and Ruchi Khanna is an associate at Chandhiok & Mahajan.


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