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8 May, 2018
The Hong Kong Competition Commission (the "Commission") recently released an advisory bulletin indicating that it has encountered a number of situations where businesses have engaged in employment-related practices which may give rise to competition concerns. Our employment and competition teams consider the key issues identified in the advisory bulletin and suggest strategies which organisations may adopt to minimize the risk of competition concerns arising.
Anti-competitive practices
The Commission has raised some concerns that businesses may be entering into agreements or sharing information on the terms and conditions on which they offer employment that have the object of harming competition, contrary to the First Conduct Rule of the Competition Ordinance ("the Ordinance"). An object infringement is, by its very existence, considered to be so harmful to the proper functioning of normal competition in the market that there is no need to examine the effects of the conduct or agreement in question.
This is different from Serious Anti-competitive Conduct ("SACC") under the First Conduct Rule, which is typically cartel conduct between competitors involving price fixing, market sharing, supply restrictions and bid rigging. Importantly, in cases involving SACC, the Commission may institute proceedings before the Competition Tribunal without first issuing a warning notice (which it must do in all other First Conduct Rule cases, including in cases involving an object infringement that is not a SACC).
The Commission takes the view that undertakings which compete with each other to hire employees should be considered as competitors in the relevant labour market because they are competing for the same input, namely labour. This is the case regardless of whether or not those undertakings compete in the provision of the same products or services (i.e., the downstream market). However, the Commission states in its bulletin that it may choose to prioritise a matter if the undertakings are also competitors or potential competitors in the downstream products or services market. This approach – i.e. examining competition in a market for the procurement of labour – is also adopted by the US antitrust authorities.
Concerning employment practices
The Commission has raised particular concerns around the following matters:
- Agreements between businesses in relation to compensation or the exchange of information about their intentions or future proposals in this regard. This is not limited to salary information but also information regarding benefits such as insurance or allowances including housing allowances, relocation support and discretionary severance payments or long service payments. Entering into an agreement or sharing such information could amount to effectively fixing the price of labour. Price fixing is considered to be an object infringement under the First Conduct Rule and where undertaken between competitors could also potentially amount to SACC.
- Agreements between businesses in relation to solicitation or hiring of each other’s employees or classes of employees (non-poaching or other arrangements) or the exchange of information about businesses intentions in this respect. Entering into an agreement or sharing such information could amount to engaging in market sharing by allocating the sources of supply. Market sharing is considered to be an object infringement under the First Conduct Rule and where undertaken between competitors could also potentially amount to SACC. In the US, the Department of Justice filed civil lawsuits against six large technology companies in 2010 for entering into non-poaching agreements. More recently, in January 2018, the US DOJ's Assistant Attorney General (Makan Delrahim) reportedly stated that the DOJ would be bringing its first criminal cases involving alleged “no poaching” agreements in violation of the Sherman Act in the near future.
The Commission has indicated that it will take the appropriate enforcement action where it has reasonable cause to suspect that any businesses have been engaging in anti-competitive practices in relation to the hiring of employees and the terms and conditions of employment. In this context, it is important to note that even the sharing of competitively sensitive information, for example salaries and benefits information, between competitors is likely to amount to an object infringement of the First Conduct Rule.
Key takeaways
To minimize the risk of competition concerns arising, organisations should:
- independently determine the remuneration and incentives offered to employees including any benefits and allowances;
- avoid providing information to other employers on remuneration, incentives and employment terms offered to employees, or receiving such information from other employers;
- solicit or recruit/hire employees without conferring with competitors or any other potential employers in any way;
- avoid engaging in any conduct that might suggest an agreement with other employers not to solicit or hire each other’s employees or classes of employees;
- avoid sharing competitively sensitive information about employment terms with competitors in the context of a benchmarking exercises or industry association; and
- roll out HR specific competition compliance training to ensure that all relevant individuals are aware of the issues and do not inadvertently engage in practices which are in breach of competition laws.
This does not mean that employers cannot take any steps from protecting their legitimate interests such as customer connections, confidential proprietary information and the stability of their workforce.
Employers should regularly review the employment terms of individual key personnel to consider whether post-employment covenants are necessary to protect such interests with regard to the individual and ensure that the covenants are drafted appropriately.
For further information, please contact:
Gareth Thomas, Partner, Herbert Smith Freehills
gareth.thomas@hsf.com
