On 9 April 2018 the Competition Commission (the “Commission”) issued an Advisory Bulletin (the “Bulletin”) addressing competition concerns regarding practices in relation to hiring and employment terms and conditions in the employment marketplace (see, our newsletter published in May 2018). The Bulletin is intended to be read alongside with the Commission’s Guideline on the First Conduct Rule (the “FCR Guideline”) dated 27 July 2015 to provide a better understanding in the competition risks and the Commission’s advice on the matters covered.
The Bulletin makes extensive references to finding restriction of competition “by object” as a basis of alleging a breach in the First Conduct Rule (“FCR”) under the Competition Ordinance (Cap. 619) (the “Ordinance”) from certain employment market practices, such as price-fixing and non-poaching agreements. The threshold endorsed in the FCR Guideline for the “anti-competitive object,” however, appears to be based on a case precedent in the European Union (the “EU”) which has subsequently been overruled. While the latest authority has imposed a threshold higher than that laid down in the overruled decision, no corresponding changes have been made by the Commission to the FCR Guideline.
Anti-competitive restriction by object or by effect
Section 6 of the Ordinance provides that the FCR applies where the object or effect of an arrangement between undertakings is to harm competition in Hong Kong. In other words, if it is shown that the agreement between the undertakings has either an anti-competitive object or anti-competitive effect, the Commission may consider the relevant undertakings to have breached the FCR.
Where an agreement is found to have an anti-competitive object, the Commission needs not establish any effect it has on harming competition in the market for the purpose of finding a breach in the FCR. Therefore, the interpretation of an “anti-competitive object” directly affects the hurdle to be overcome by competition authorities in alleging a breach in competition rules. Whilst the Ordinance does not expand on the matter, the Commission’s FCR Guideline sheds some light on a possible explanation of legal threshold in finding an anti-competitive object.
The Commission’s threshold as overruled by EU case law
The threshold imposed by the FCR Guideline is as follows:-
“It is sufficient for the Commission to show that the agreement has the potential to harm or is capable of harming competition in the relevant context.” (para. 3.9)
The wording in the FCR Guideline mirrors the decision on 29 November 2012 by the General Court of the Court of Justice of the EU (the “General Court”) in Groupement des cartes bancaires v Commission C-67/13 P, which was subsequently overruled by the European Court of Justice (the “ECJ”). In this subsequent decision, the ECJ clarified the concept of restriction of competition “by object” and held that such concept can be applied “only to certain types of coordination between undertakings which reveal a sufficient degree of harm to competition that it may be found that there is no need to examine their effects”. It was further ruled by the ECJ that the threshold adopted by the General Court would in effect exempt the Commission from “the obligation to prove the actual effects on the market of agreements which are in no way established to be, by their very nature, harmful to the proper functioning of normal competition”. This position of a higher threshold was subsequently confirmed by the General Court in its subsequent rulings but has not been reflected in the Commission’s publications.
Consequences of the different threshold in Hong Kong
As seen from the above, the threshold adopted in Hong Kong drawn from the FCR Guideline is arguably lower than that currently adopted in the EU. As a result of this distinction, there is limited reference value of the case law of the EU when it comes to cases in Hong Kong regarding a breach of the FCR on the basis of anti-competitive object. It is also uncertain whether the Competition Tribunal, in future enforcement actions regarding breach of the FCR, would adopt this lower threshold. Considering the relatively short history of the competition law regime in Hong Kong, there is ample space for the Commission and the Competition Tribunal to refine the legal tests adopted in this area and, if considered appropriate, to bring our regime in line with that of overseas jurisdictions.
The threshold adopted in the FCR Guideline in finding an anti-competitive object seems to be less burdensome to the enforcement authority compared with its European counterpart. It is worth noting that under section 35(7) of the Ordinance, in any legal proceedings, the guideline documents published by the Commission may, so far as the guideline is relevant to such legal proceedings, at most be adduced as admissible evidence in such court proceedings and proof that parties to the proceedings may rely on in establishing that a person tends to have or have not breached the Guideline. In other words, the guideline documents published by the Commission should not be regarded as a subsidiary legislation binding on the Competition Tribunal or the Commission itself. Until this matter becomes settled by a Competition Tribunal’s ruling, this threshold on anti-competitive object may be subject to further adjustments by the Commission.
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This article does not constitute legal advice or a legal opinion on any matter discussed and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. If you require any advice or information, please speak to practicing lawyer in your jurisdiction. No individual who is a member, partner, shareholder or consultant of, in or to any constituent part of Interstellar Group Pte. Ltd. accepts or assumes responsibility, or has any liability, to any person in respect of this article.