REAL ESTATE AGENCIES AGREED NOT TO COMPETE FOR CLIENTS AND EMPLOYEES
The Lithuanian competition authority Konkurencijos taryba has established that the Lithuanian Association of Real Estate Agencies (LAREA) and its 39 members agreed not to solicit each other's clients and brokers, and thus restricted competition. The infringement of the Law on Competition and the Treaty on the Functioning of the European Union resulted in a total of EUR 969,060 in fines.
Konkurencijos taryba found that the Code of Ethics, which was adopted by the members of the LAREA in 2015, included a provision under which real estate specialists had to avoid direct contact with the brokers’ clients of other agencies belonging to the association. By this provision the members of the LAREA sought to avoid competition among themselves in order not to lose their existing clients with whom they had concluded exclusive contracts.
“These provisions of the Code of Ethics are anti-competitive since they eliminate real estate agencies’ ability to compete for and offer clients the best possible conditions, such as lower prices, a greater variety of distribution channels, as well as to take more active steps while seeking to conclude a real estate transaction. In the absence of the anti-competitive agreement, clients could have received more beneficial offers from other agencies (e.g. a lower commission fee) and chosen another service provider”, said Šarūnas Keserauskas, Chairman of Konkurencijos taryba.
Besides, the LAREA and its members agreed not to compete for each other’s real estate brokers. Soliciting specialists from other real estate agencies was considered unethical behaviour, for which penalties were envisaged.
“Such provisions of the Code of Ethics limited real estate agencies’ autonomy in the market since they could no longer compete for each other's brokers. When companies agree not to compete for each other's employees, the latter lose their bargaining power with employers, which worsens the employees’ ability to negotiate higher salaries and other more favourable working conditions. Due to restricted competition between employers, consumers also experience harm because only competitive employees can create more and better goods and services”, said Šarūnas Keserauskas who emphasised that real estate agencies could not have failed to understand that by committing to adhere to the Code of Ethics they restricted competition among themselves.
Firms’ agreements not to compete for employees significantly restrict competition, therefore, in recent years they have attracted particular attention not only from Konkurencijos taryba (the authority selected the investigation of such infringements among its priorities), but also from the European Commission, competition authorities of the USA and other countries.
Konkurencijos taryba noted that the LAREA's Code of Ethics did not simply transpose the provisions of Article 15 of the Law on Competition, which prohibits proposing to the competing undertaking’s employees to terminate their employment contract, as real estate agencies stated. According to the case law, an infringement of Article 15 of the Law on Competition is established only in cases where an undertaking’s actions related to the submission of a job offer to a competitor’s employee are unfair and may affect another undertaking’s ability to compete. Meanwhile, according to the LAREA's Code of Ethics, any offer of employment or cooperation to the broker, for instance, even a phone call proposing to meet and discuss possibilities of cooperation, is prohibited. Nevertheless, when imposing fines, Konkurencijos taryba took into consideration that it has been its first decision on the relationship between Article 5 of the Law on Competition, which prohibits anti-competitive agreements, and Article 15, which prohibits the actions of unfair competition, and acting in accordance with the principles of fairness and reasonableness reduced the sanctions by 20 per cent.
The infringement of Article 5 of the Law on Competition and Article 101 of the Treaty on the Functioning of the European Union resulted in the following fines: LAREA – EUR 4,490, Adomax – EUR 3,460, Adomus – EUR 2,020, Aidila – EUR 4,790, Apus turtas – EUR 38,340, Augida – EUR 4,690, Capital Realty – EUR 69,900, Centro kubas-Nekilnojamasis turtas – EUR 16,440, Namų partneriai – EUR 1,020, Etapas – EUR 20,980, Gijoneda – EUR 16,050, Hausa – EUR 1,080, Inreal – EUR 124,660, Juda NT – EUR 11,220, Lendor Estate – EUR 6,560, NTA 21 Amžius – EUR 23,910, NT Savas Būstas – EUR 14,920, Ober-Haus nekilnojamas turtas – EUR 450,640, Ontex – EUR 12,510, Pamario NT – EUR 2,950, Proreal Invest – EUR 1,370, Rebesta – EUR 13,200, JG Franchise – EUR 13,970, Renatos namai – EUR 8,680, Resolution LT – EUR 21,210, Rezidentas – EUR 3,440, Oberstata – EUR 4,510, Trakų grupė – EUR 1,160, NT paslaugų centras – EUR 950, Urban Estate – EUR 6,690, ES Investment – EUR 2,820, Vilniaus turtas – EUR 28,330, Citus – EUR 20,900, Reon – EUR 3,700, Laurus Real Estate – EUR 7,400, Namelita – EUR 100. Four real estate agencies, which do not conduct any activities, have not received sanctions.
The decision of Konkurencijos taryba may be appealed to Vilnius Regional Administrative Court within one month of its notification or publication on the authority's website.