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The Estonian Competition Authority provides guidance on solicitation fee agreements between competitors

2019-02-26

In July 2018, the Competition Authority published its decision to discontinue proceedings against the Estonian Ice Hockey League regarding an agreement between its members to regulate the compensation fee paid to hockey clubs upon the solicitation of hockey players.

The decision provides a welcome insight into the thinking of the Estonian Competition Authority as to when agreements limiting the free movement of employees (in this case, hockey players) may restrict competition and under what conditions such agreements may nevertheless be allowed.

The Ice Hockey League had put in place a schedule of fees determined on the basis of a player’s age which should be paid by the solicitating hockey club to the previous hockey club of the player. The Competition Authority concluded that such agreements, in principle, restrict competition and therefore are unlawful unless justified due to positive effects.

The Authority went on to assess whether such effects were present. In the Authority’s view:

  • agreements which limit the solicitation of players may be allowed provided that they enable the clubs to invest into their players, trainers, training locations as well as equipment;
  • the agreed compensation paid by the hockey clubs may not be arbitrary and the compensation must be proportionate to the objective it sees to achieve. On one hand, of the amount must incentivise the clubs to invest in their players. On the other hand, the fee may not render the solicitation of players unnecessarily difficult;
  • the agreement was unlikely to benefit from the exemption from prohibition, since the fee was determined purely on the basis of age of the player, and the clubs were unable to justify their overly simplistic formula; and
  • as an alternative, the clubs could agree on a maximum amount of fee, allowing for further downward negotiation in each case separately.

After the start of the proceedings, the parties involved abandoned the schedule of fees to replace it with a system which would meet the requirements outlined by the Competition Authority. Further, since the solicitation fees had not had an effect on competition in practise, the Competition Authority decided to discontinue its proceedings whilst leaving open the possibility for further actions in the future.

Based on the above, it is clear that, in principle, compensation mechanisms limiting the solicitation of employees do fall under the prohibition of anti–competitive agreements. However, such agreements may be allowed provided that (i) they encourage the undertakings involved to invest in their employees, (ii) they are proportionate to a reasonable objective, and (iii) they allow for flexibility as to the amount paid. This suggests that the Competition Authority favours a compensation arrangement which is carefully tailored to the specifics of a situation. Further, while a framework agreement is allowed, it should act as a fall-back arrangement in case the parties involved be unable to agree on the exact amount of compensation.