Can managers be held liable for antitrust fines?

A legal dispute currently pending in Dortmund illustrates the risks

By Daniel von Brevern, LL.M

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It is today well known that antitrust violations can be costly for businesses. Antitrust authorities like the European Commission or the German Federal Cartel Office (Bundeskartellamt) regularly impose two- or three-digit-million fines on companies for their alleged involvement in illegal cartels or other antitrust infringements. What is far less well known is that the managers in charge of the companies being fined can be held personally liable for these fines. An impressive example of this kind of manager liability is a legal dispute currently pending before a district court in Dortmund/Germany.

Background

In 2012 and 2013, the Bundeskartellamt imposed fines totaling 191 million euros on an industrial company for its alleged participation in a cartel involving rail parts. The company subsequently requested payment of € 300 million (the amount of the fine plus damages) from a former key manager, claiming that the manager violated managerial duties. The manager denied having participated in the cartel and refused to pay. The company took the claim to the Essen Labor Court. The Essen Labor Court, as well as on appeal the Düsseldorf Regional Labor Court and on further appeal the Federal Court of Labor, spent five years discussing whether the labor courts actually had jurisdiction to decide on the claim. Ultimately, the Federal Court of Labor decided that the claim needed to be decided by a civil court. The dispute has therefore been referred to the Dortmund District Court, where it is now pending.

Passing on fines from the company to the manager

Regardless of the unfortunate and ongoing odyssey through the various courts, the case raises an important question: Can companies that have been fined by an antitrust authority for their involvement in antitrust law infringements reclaim the fine from the responsible manager(s)? Under German corporate law, the supervisory board of a stock corporation has a legal obligation to pursue enforceable claims for damages against members of the management board. It therefore does not come as a surprise that stock corporations, but also other companies, are carefully considering whether they can recover fines for antitrust infringements from the (allegedly) responsible managers.

Whether such recourse is actually possible has not yet been decided and is controversial. The Düsseldorf Regional Labor Court argued that companies are not entitled to pass on the damages resulting from an antitrust fine to their managers. The court argued that this would not be compatible with the differentiated antitrust sanction system currently in place. It also questioned the impact it might have in terms of prevention if companies were ultimately able to avoid financial sanctions for antitrust violations. Others, however, argue that an antitrust fine is no different from any other damage and should be treated no differently. Otherwise, the shareholders of the company would ultimately bear the burden of conduct for which the managers were responsible.

It will now be up to the Dortmund District Court and the subsequent appeal courts to clarify the issue. The outcome is open but the Düsseldorf Regional Labor Court’s reference to the differentiated antitrust sanction system is likely to be met with sympathy by the civil courts. The fines imposed by the Bundeskartellamt are ’tailored’ to the respective companies and are based on the sales affected by the antitrust infringement. In addition, there is an upper limit (up to 10% of the group-wide total turnover) which the Bundeskartellamt has to take into account when determining and imposing the fine. The civil courts may have difficulties accepting that a manager is held responsible for a fine that was determined without taking into account his or her personal circumstances. Moreover, while the 10% upper limit applies to companies, there is no similar upper limit for managers.

Damages, personal fines and criminal sanctions

  • In addition to the potential passing on of fines, managers can also be held directly responsible for antitrust violations. The nature and extent of personal liability depends largely on where the antitrust violation is committed, and which authority or court prosecutes the violation.
    Antitrust violations can result in damages to customers, suppliers or other business partners of the companies involved in the infringement. It is today well established that injured parties can claim compensation for the damage suffered. While the focus is on damage claims against companies, damage claims against individuals are conceivable.
  • In most countries, antitrust authorities and courts can impose fines only on the companies involved in the
    antitrust infringement, not on the employees involved. But in Germany the situation is different. The Bundeskartellamt is entitled to impose fines of up to € 1 million on the responsible managers. In practice, the Bundeskartellamt often makes use of this and imposes fines on both companies and individuals.
  • In a number of countries, antitrust violations are considered criminal offenses punishable by prison sentences. This applies, for example, in the US, Canada, Australia and Japan. In Europe, prison sentences are possible in, for example, Denmark, France and the United Kingdom. Prison sentences for antitrust violations are by no means a theoretical risk. In the 1990s, a Swiss manager of a pharmaceutical company based in Switzerland was extradited to the US and served a prison sentence of several months. More recently, an Italian manager tried to prevent his extradition from Germany to the United States by using all available instances, including the Federal Constitutional Court. He ultimately failed and was extradited.

Conclusion

So far, there has been no final decision by German courts as to whether companies that have been fined for antitrust violations can recover these fines from the responsible managers. The uncertainty will remain until the courts have settled the issue. However, the risk that a manager is held liable for an antitrust violation and is individually fined or, in a worst-case scenario, sentenced to prison, exists in any event. Ultimately, the only way of avoiding antitrust liability is to regularly train managers and other key employees. It is crucial that they develop an understanding of conduct that may be critical from an antitrust law point of view and learn to distinguish conduct that raises no issues from conduct that requires careful review. If such antitrust compliance training is properly implemented, both managers and the companies they are working for will be able to avoid liability for antitrust infringements.

dbrevern@mwe.com