Turkey: Evaluation Of No-Poaching Agreements As Ancillary Restraints In Mergers And Acquisitions

INTRODUCTION

Poaching, can be defined as the influence of an undertaking on the employee of another undertaking to establish a new employment relationship with itself by renouncing the current employment relationship. Poaches may be made directly or indirectly by undertakings. Agreements made directly or indirectly for the purpose of poaching employees may generally be considered as a violation of competition law rules.

Due to changes in human resources, one of the most important resources of companies, commercial and operational processes within the company may be adversely affected. Therefore, employers try to prevent such poaching. In this regard, undertakings may conclude agreements to prevent the transfer of employees. No-poaching agreements are essentially defined as a mutual waiver by undertakings to compete on a limited labor input.

On the other hand, direct/indirect agreements between employers of the undertakings to prevent the transfer of employees between undertakings may deprive employees of job opportunities offering higher wages and better conditions. Thus, the competitive structure in labor markets may be undermined by agreements between undertakings not to poach workers, by reducing the mobility of the labor factor between undertakings and/or by artificially depreciating the real value of wages.

Since the effect which is directly preventing or restricting competition varies for each agreement, the Competition Authority ("Authority") considers no poaching agreements as ancillary restraints in some cases and considers these agreements as legitimate agreements if they are made under the conditions accepted by the Authority.

EVALUATION OF THE ANCILLARY RESTRAINT NATURE OF THE NON-SOLICITATION RESTRICTION WITHIN THE FRAMEWORK OF THE DECISIONS OF THE COMPETITION BOARD

A. The Concept of Ancillary Restriction and Criteria Regarding the Nature of Ancillary Restriction

Ancillary restrictions are defined in paragraph 48 of the Guidelines On Undertakings Concerned, Turnover And Ancillary Restraints In Mergers And Acquisitions ("Guideline") as "restrictions which are directly related to the concentration and which are necessary to the implementation of the transaction and to fully achieving the efficiencies expected from the concentration ", and whether they are directly related to and necessary for the implementation of the transaction in the case of mergers and acquisitions subject to authorization is addressed within the scope of such authorization. In this respect, it is stated that agreements, concerted practices and decisions limiting competition regulated under Articles 4 and 6 of Law No. 4054 on the Protection of Competition ("Law") shall not be considered as abuse of dominant position, and it is regulated that ancillary restrictions may be considered legitimate, even if they have the nature of limiting competition since they ensure the full realization of the merger and acquisition transaction subject to the Competition Board's authorization.

As can be understood from the definition of an ancillary restriction in the Guidelines, in order for a restriction to be considered an ancillary restriction, it must meet the criteria of "being directly related to and necessary for the transaction", "being restrictive only between the parties" and "proportionality", and these criteria are evaluated separately by the Competition Board in each concrete case.

In accordance with the Guidelines, in order for restrictions to be deemed directly related, it is not sufficient for them to be made in the same scope or at the same time as the concentration transaction; they must be economically related closely to the main transaction and must be envisaged for a smooth transition to the new structure that will be formed as a result of the concentration. The criterion of necessity may be met in cases where the relevant restriction is mandatory for the conduct of the concentration transaction or, without the restriction, there would be a significant increase in uncertainty and costs for the main transaction. In order to determine whether the restriction is necessary, the duration and scope of the restriction, in addition to its nature, are also important when determining the necessity.

In addition, the necessity that the least restrictive alternative should always be preferred among alternative restraints that achieve the same result can be determined from several Competition Board decisions.

B. Evaluation of the Ancillary Restriction of Employee Non-Solicitation Agreements

As stated in the relevant Guidelines as, "Any obligation similar to or complementary with non-competition obligations such as those preventing the seller from employing the employees of the undertaking to be acquired and from disclosing or using the trade secrets of the undertaking to be acquired shall be assessed in a manner similar to non-competition obligations" The criteria to be applied by the Authority to no-poach agreements were explained comparatively and the Authority's assessments of no-poach agreements were analyzed within the scope of the decisions.

In the precedent Competition Board decisions, regarding the no-poaching and the condition of not soliciting employees in and outside Turkey for a period of five years imposed on the sellers under the share purchase and sale agreement signed between the parties to the transaction, the Competition Board evaluated that competition is intense in the fields of activity of the company subject to the transfer and that technical know-how is an important competitive factor in the field of activity. The Competition Board held that the prohibition of competition, which is regulated as an ancillary restriction, does not exceed the extent specified in the Guidelines, and is appropriate for the specific case taking into account the geographical markets in which the company aims to operate, and that the provision of no poaching of employees is reasonable by accepting it as an ancillary restriction parallel to the non-solicitation.

On the other hand, in another precedent decision of the Competition Board; where it was concluded that the Joint Venture Agreement to be signed between the parties to the transaction was not subject to authorization within the scope of mergers and acquisitions, the non-competition and no-poaching provisions of the relevant agreement were externally examined for a negative clearance certificate since the joint venture was a concentrating transaction. As a result, it was decided that the non-compete clause may be considered as reasonable provided that it is limited to the duration of the existence of the joint venture and it was stated that the regulations regarding the non-competition provisions are also applied to the no-poaching provisions, and it is possible to qualify the no-poaching clause as an ancillary restriction if it is imposed during the period of joint control in terms of the no-poaching agreement.

In other decisions of the Competition Board in this direction, it is seen that it has been considered reasonable that the non-solicitation obligation provided within the scope of mergers and acquisitions is valid as long as the partnership continues; and it has been determined the maximum period of three years required by the Competition Board for a non-solicitation obligation is also applicable for no-poaching agreements.

CONCLUSION

No poaching agreements, that different actors operating in the same market agree not to employ each other's employees through an agreement, have been the subject of examinations by competition authorities frequently, due to their effects such as restricting competition in the labour market, reducing employee mobility and suppressing wages, and leads employers to hire fewer employees and decrease in wages in scenarios where the undertakings entering into a no-poaching agreement have market power in the downstream market, hiring fewer workers and wage decreases.

Since the Competition Board has stated that no-poach agreements will be evaluated in a similar manner with non-solicitation obligations under the Guideline, the Competition Board has stated in its decisions that it should be evaluating whether the no-poaching agreements meet the criteria of "being directly related and necessary", "being restrictive only between the parties" and "proportionality" criteria which are accepted as the criteria of ancillary restraints in each specific case.

Although the Competition Board's view on no-poaching agreements varies according to the necessity of each specific case and the characteristics of the agreement; especially in transactions evaluated within the scope of concentration transactions, it can be said that Competition Board does not evaluate no-poaching agreements as an ancillary restraint and considers those agreements as a non-compete agreement in cases that;

– No poaching provisions is not restricted for a specific period,

– No poaching provisions cannot be reasonably explained by the nature of the commercial business,

– No poaching provisions which reduces competition in the labour market and,

– Which have consequences affecting third parties other than the parties of the no-poaching agreement,

by considering numerous criteria such as the term and scope of the no-poaching obligation, the position of the undertaking in the market, the entry barriers in the market and the size of the concentration, non-solicitation agreements concluded between the employee and the employer, etc.

Competition
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