In April this year, the Hong Kong Competition Commission issued an Advisory Bulletin (AB), warning businesses not to engage in “no-poach” agreements with other businesses in respect of their employees, or to discuss or agree with other businesses the level of salaries or other benefits.
Such activities – hereafter referred to as “the Practices” – in the Commission’s view, could amount to “serious anti-competitive conduct” under the Competition Ordinance (CO).
The AB took many businesses by surprise. First, not because of the policy behind the Commission’s view (to prevent collusion between businesses to limit employee benefits), but that the CO was being used as the instrument to achieve this objective. Traditionally, employment legislation has been used to protect employees in Hong Kong, not competition law.
The second cause for surprise was the lack of any prior consultation or notice on the proposed AB. Both reasons for surprise seem justified, as this article explains.
Regarding the first reason, the AB seems to be at odds with the objectives of the CO, its content, and the related guidelines issued.
As regards objectives, the then Secretary for Commerce and Economic Development said in a Consultation Paper in May 2008 that the purpose of the proposed competition law was “to enhance economic efficiency and thus the benefit of consumers through promoting sustainable competition.” Two years later, in July 2010, when the Government presented the Competition Bill to LegCo, it stated the objective of the Bill in these terms:
“The Government’s competition policy is to enhance economic efficiency and the free flow of trade through promoting sustainable competition to bring benefits to both the business sector and consumers.”
Note the emphasis on promoting economic efficiency and consumer welfare. The AB, on the other hand, states that outlawing the Practices “leads to better employment terms (eg higher salaries or more favourable benefits) and increased opportunities for employees.”
While this may be a laudable aim, it stands in stark contrast to the stated objectives of the CO of increasing economic efficiency and consumer welfare. These objectives are about reducing costs, which can then be passed on to consumers in the form of lower prices or better goods or services. They have nothing to do with increasing costs, in the form of higher salaries or other benefits to employees.
Turning to the content of the CO, there is no indication that the Practices would be prohibited. The examples of serious anti-competitive conduct under the CO include “fixing, maintaining, increasing or controlling the price for the supply of goods or services” (emphasis added). The Commission now argues that fixing wages or other benefits equates to fixing the price of goods or services. This seems tenuous, to say the least. The same can be said for the Commission’s argument that agreeing not to poach each other’s employees amounts to “allocating markets.”
Finally, the Commission’s guidelines do not identify the Practices as being problematic under the CO, even though they do give many other examples of anti-competitive conduct.
The second cause for surprise – the lack of prior consultation on the AB – also seems justified.
The AB is effectively a guideline, or perhaps more specifically an amendment to an existing guideline. As noted above, the Practices are not mentioned in the existing guidelines as being problematic. Under the CO, guidelines, and any amendment to them, are subject to prior consultation with LegCo before they can be implemented. Indeed, drafts of the existing guidelines were put out to consultation not just with LegCo but with the public before being implemented.
But there was no prior consultation on the AB before it was issued. It would seem unusual if public and LegCo scrutiny of what is effectively a guideline, or amendment to a guideline, could be avoided just by calling it an “Advisory Bulletin.”
The Chamber also pointed out to the Commission recently its concern about the lack of prior consultation on new clauses the Commission was suggesting for public tender documents, which could deter consortium bids (for more information on this topic, see the February 2018 issue of The Bulletin).
It will ultimately be up to the courts to decide whether the Commission’s view that the Practices may contravene the CO is correct. In the meantime, businesses would be well advised to take legal advice on the contacts that their HR departments have with other organizations, to assess the legal risks and take appropriate action.