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Prevention is better than cure when it comes to Hong Kong’s new Competition Ordinance

Published on Saturday, 23 Jan 2016

The New Ordinance

Competition laws, which promote and maintain market competition by deterring anti-competitive behaviour, have been in force in Europe and the US for many years. On December 14, 2015, the Hong Kong Competition Ordinance finally came into full force. 
Although the ordinance may not have an obvious discernible link to HR practices, it does have implications for employers. 
In the employment context, adopting the following practices may dubiously cross the legal boundary: wage-fixing; the exchange of sensitive HR-related information; non-solicitation agreements between competitors; and collusive poaching agreements.

The Questionable Practices

Wage-fixing is a form of anti-competitive behaviour and will likely be questioned by the Competition Commission. It takes place when two or more competitors agree to fix wages for employees of a particular class at the same level.

A wage-fixing agreement will likely be frowned upon by the Competition Commission. It effectively renders the waging mechanism in the market dormant and it adversely affects the mobility of employees in those sectors. 

For example, 15 hospitals were found by the Dutch Court to have violated the competition law for entering into an agreement on not paying supplemental wages to their anaesthesiologists. This type of conduct, if it happened in Hong Kong, would likely be questioned by the Competition Commission.

The exchange of sensitive HR-related information with competitors, such as employees’ remuneration, may also give rise to anti-competitive issues. This is because in many labour-intensive sectors, such as aviation, education and professional services, direct operating costs would include wages. 

Exchange of key components of a business’s expenditure – such as staff wages, discretionary bonuses, commission and housing – could therefore be viewed as exchanging competitively sensitive information relating to direct operating costs. This may affect competitiveness of fees for services and may also distort competition in the job market. 

Generally speaking, the risk of violating competition law depends on what information is shared, how the information is shared, whether the information is in the public domain, and whether such exchange of information would result in coordinated strategies among competitors that affect the competitive process. 

Having said this, exchanging information on HR-related industry trends, service providers and best practices would unlikely have any anti-competitive effect or object. Likewise, participating in wage surveys managed by a third party should also be acceptable. This is assuming the wage information is at least several months old, the results are aggregated and there are a sufficient number of participants taking part in the survey. 

Non-solicitation agreements between competitors are also off-limits. Such agreements would restrict employees’ mobility, and would also distort competition in the job market.

The high-profile US anti-trust lawsuit against four tech giants is a classic example. The four companies were alleged to have conspired and secretly agreed not to recruit each other’s employees from 2005 to 2009 in order to keep salaries down. They were taken to court by a group of employees. This class action was eventually settled with a whopping sum of US$415 million.

Collusive poaching agreements, involving two or more cartelists agreeing to poach key employees from a non-cartel member to cripple its ability to compete, would also be considered anti-competitive. Admittedly this is uncommon, as other forms of liability will also stem from such an agreement. 

The Strategy for Employers 

There are some practical tips that employers may consider adopting to mitigate the risks of violating competition law.

First, implement an HR policy and guidelines that are anti-competition compliant. Follow this up with a review of existing arrangements, practices or policies to identify anti-competitive risks.

Provide training on competition law compliance to “high risk” staff, such as senior staff and HR, and staff who will participate in “high risk” events, such as industry conferences.

Do not discuss competitively sensitive information with competitors such as staff wages, bonuses, commission, planned pay rises, planned pay cuts or other key components of staff remuneration.

Finally, train frontline staff to respond to unannounced inspections by the Competition Commission. 
As always, prevention is better than cure!

This article appeared in the Classified Post print edition as Avoid tripping on new competition law.

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