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What HR needs to know about the competition ordinance in Hong Kong

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In order to further Hong Kong’s position as one of the freest and fairest markets in the world, it’s necessary to encourage healthy competition among businesses, prohibit anti-competitive practices and generally level the playing field for all businesses in Hong Kong, writes partner and head of employment for Hong Kong Helen Colquhoun, and associate Alex Ma at DLA Piper.

To achieve this, the Competition Ordinance (Cap 619) (“Ordinance”) was enacted and came into effect in 2015, with the aim to prohibit conduct which prevents, restricts or distorts competition in Hong Kong.  Under the ordinance, the following two rules were introduced:

  • First conduct rule: which prohibits any arrangement between any businesses which prevent, restrict or distort competition (for example, price-fixing agreements or combined effort to manipulate other key parameters); and
  • Second conduct rule: which prohibits conduct engaged in by businesses with substantial market power with a view to exclude other competitors from the market (for example, offering pricing at below cost in an attempt to suffocate competitors or exclusive dealing arrangements with suppliers with the aim to foreclose its competitors).

The Competition Commission (“Commission”) was established for the purposes of promoting competition and investigating breaches of the ordinance. Recently, the commission published a bulletin (“Bulletin)  to remind HR professionals, employers and employees that the prohibitions on anti-competitive practices apply not only to the goods and services marketplace, but also the employment marketplace. In particular, employers are advised to be mindful of and refrain from malpractices which may be in contravention of the first conduct rule.

EMPLOYERS AND THE FIRST CONDUCT RULE

In the employment context, each employer is a competitor who competes in the labour market. To avoid falling foul of the first conduct rule, employers should refrain from entering into agreements or concerted practices regarding compensation packages (or other terms and benefits packages) and from sharing sensitive information which may likely distort competition.

In the bulletin, the commission advises employers the following are prohibited conduct which fall foul of the first conduct rule:

  • Wage-fixing agreements: Agreements among employers in relation to the setting or fixing of various aspects of compensation are prohibited. This is because such an arrangement would contribute to fixing the price of labour and distorting competition in the labour market. It should be noted that compensation in this context includes not only salary/wages, but also include benefits and allowances and severance payments.
  • Non-poaching agreements: Agreements among employers in relation to the solicitation or hiring of each other’s employees are prohibited. This is because such an arrangement would dictate the sourcing and allocation of supply in labour which hampers competition.
  • Exchange of sensitive information: Employers should also bear in mind that not only are wage-fixing and non-poaching agreements not permitted, but also the sharing of information about their intentions in these are also prohibited. Employers are reminded that in the commission’s guidelines on the first conduct rule, it states that the term “agreement” is a broad concept that captures any oral, written, express or implied arrangement, understanding, promise or undertaking.  It does not matter whether the agreements/arrangements are legally enforceable or not.

TAKE HOME MESSAGE FOR EMPLOYERS

The bulletin is a reminder from the commission that the competition rules contained in the ordinance apply not only to the general market, but also to the labour market. The main takeaway message for employers is that employers should always independently formulate and determine the employment terms for its employees (particularly in relation to competition and solicitation of new recruits). These matters are sensitive and should not be openly shared with other employers. Failure to comply with these requirements may result in the breach of the ordinance.

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