The Hong Kong Competition Ordinance (Cap. 619) (Ordinance) came into effect on 14 December 2015. Anti-trust laws have been long-established in the US, Europe and Australia—they make for good business practice. In Hong Kong, the Competition Commission has stated that it is ready to be ‘an effective enforcer of the competition law which will support Hong Kong's open economy by ensuring fair and free markets for all’. But what exactly has this got to do with HR—and what action does HR need to take to make sure it doesn’t fall foul of the Law? We spoke to Fiona Loughrey, Partner, Simmons & Simmons to get her take on what the Ordinance actually means and its implications for human resources directors.
The Commission
The Ordinance, which was first enacted almost four years ago, in June 2012, among other things aims to prohibit conduct that prevents, restricts or manipulates competition in Hong Kong. It is enforced by the Competition Commission and Competition Tribunal. The Commission is chaired by Ms Anna Wu Hung Yuk—appointed by the CE in May 2013, along with 13 other members representing various sectors. No enforcement action has been announced by the Commission since the Ordinance came into effect, but the Commission will publish registers of decisions, infringement and warning notices, and block exemption applications and orders, on its website—at the time of going to print, one block exemption order application had been received.
The Ordinance
The Ordinance contains three competition rules:
- First Conduct Rule—prohibits anti-competitive conduct involving more than one party;
- Second Conduct Rule—prohibits a party with substantial market power abusing its position; and
- Merger Rule—prohibits anti-competitive mergers and acquisitions by telecoms carrier licensees.
The Government has published a series of Guidelines for all businesses to help them understand the scope and implication of the Ordinance together with an SME Toolkit focused on compliance with the First Conduct Rule—being the rule most relevant to SMEs. Details are on the Commission’s website: www.compcomm.hk.
Key Prohibitations
First Conduct Rule
The First Conduct Rule prohibits anti-competitive conduct involving more than one party that has the intention, or effect, of restricting competition in the market. This means that agreements and even ‘cooperative arrangements’ between parties which restrict competition in Hong Kong became illegal. The First Conduct Rule does not apply to arrangements between businesses where their combined turnover is less than HKD 200 million so long as that arrangement is not serious anti-competitive conduct, i.e. cartels engaging in:
- Price fixing—where multiple organisations collaboratively set prices or elements relating to prices such as discounts and price ranges;
- Market sharing—where parties collude to allocate different segments of the market amongst themselves e.g. by territory or customer type. An example of this is collusive poaching—where HR and/or senior management in several organisations work together to poach key talent from a competitor in order to bring about a disadvantage to that competitor.
- Bid rigging—during a tender process agreeing with competitors what bid they should make in order to ‘rig’ the tender exercise in favour of one organisation; and
- Output restrictions—where competitors agree to limit their production/ sales outputs to help drive up prices and maximise their market positions.
The Commission is expected to deal with infringements of this nature most seriously. For other lesser infringements—unless repeated incidents occur—it will first issue a warning.
Second Conduct Rule
The Second Conduct Rule prohibits a single business that has significant market power from abusing that position through anti-competitive conduct. The Second Conduct Rule does not apply to a business with a turnover of less than HKD 40 million per annum.
Merger Rule
The Ordinance also prohibits mergers or acquisitions which will, or are likely to, substantially reduce competition in Hong Kong—and is currently limited to telecoms carrier licensees.
Penalties
Businesses found to have infringed a Conduct Rule can, amongst other sanctions, be fined up to 10% of their Hong Kong turnover, and possible sanctions against individuals include relevant Directors being disqualified and criminal sanctions for obstructing an investigation by the competition authorities.
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HR beware! Beware of information sharing—sharing information is part and parcel of legitimate commercial behaviour. However, sharing competitively-sensitive commercial secrets with a competitor such as salaries and benefit packages—even informally over drinks after work—is likely to constitute anti-competitive behaviour. Beware of collusive poaching— HR must not work with other organisations to formulate hiring strategies that target poaching staff from competitor organisations. Beware of recruitment agreements—HR must not discuss salary levels and trends with other organisations in order to try and agree upon a fixed salary range for recruitment. Non-compete clauses in employment contracts are unlikely to be affected—as they are just set between the employee and the employer and do not involve collusion with any third parties. |
What can HR do to mitigate risks?
There are several approaches that HR can take in order to help ensure compliance with the Ordinance.
- Eliminate cartel risk: if HR perceives any engagement in cartel activity they should keep a log of the cartel risks identified and how they have been dealt with, and then consider seeking legal advice, remembering that the competition authorities offer leniency to the first business that reports the cartel.
- Modify business practices: HR can work with senior executives to help modify existing business practices in order to achieve a similar outcome in a manner which is not anti-competitive. Loughrey cautioned, “Those in HR must be careful when obtaining market information—for example, about salary ranges. If they obtain such information by directly or indirectly contacting competitors to ascertain what their ranges are—this would likely be considered anti-competitive. They should, rather, obtain such information from generic open sources such as salary surveys and the media.”
- Appoint a compliance officer: HR should appoint a person to be responsible for the compliance strategy.
- Develop a competition compliance policy: HR should work with their legal and/or compliance team to develop a workable compliance policy. Competition compliance is the responsibility of all employees and HR together with the CEO, senior management and the board should lead by example and should prepare a written statement setting out their personal commitment to competition compliance.
- Provide training to staff: HR has a responsibility to communicate and explain their compliance strategy to staff for implementation. Organise simple workshops to ensure staff—especially those coming into contact with competitors, suppliers or customers—have a basic understanding of the Ordinance and the key DOs and DON’Ts. HR should deliver a strong message that compliance with the Ordinance is everyone’s responsibility. Keep a record of employees who attend training. Loughrey confirmed, “Education is a really important function for HR, to ensure that staff members understand the DOs and DON’Ts when it comes to compliance.”
- Implement extra measures for higher risk staff: HR should consider targeting training for ‘higher risk’ staff members e.g. frontline sales staff and staff participating in ‘higher risk events’ such as annual industry conferences where competitors will be present. Loughrey added, “HR should work closely with the compliance team to ensure that higher-risk staff such as salespersons and senior representatives are given clear examples of what they can and cannot do.” She noted, “It’s important for HR to ensure staff understand they need to be careful with sensitive information—not just in the office, but even in social situations. Suggestions, by a person associated with the Commission in November 2015, to the effect that individuals, not just their corporate employers, could be fined, has caused concern and this needs to be clarified. The Commission has to date not given any real guidance on this, and has indicated that it considers the matter to be a question it will leave the Competition Tribunal to decide.”
- Circulate guidelines and protocols: HR should circulate the Commission’s SME Brochure to all staff and ensure they read it and understand the key concepts therein. Where needed HR can also prepare additional guidelines and protocols to help staff manage risks, e.g. guidelines for staff attending trade association or industry meetings, guidelines on how to handle competitively-sensitive information and guidelines on how to deal with competition law complaints—both internal and external.
- Encourage compliance: In businesses with a higher risk profile, HR should consider introducing additional measures to encourage staff to comply with the Ordinance. For example, developing appropriate protection for whistleblowers or imposing sanctions for staff who engage in competition law breaches.
Don’t worry, you’re not on your own: trade associations can usually provide help with competition compliance issues—but bear in mind they too will be under the Commission’s spotlight in relation to information sharing; and if you get really stuck, seek legal advice.
Paul Arkwright
Publisher
