Hong Kong, 29 October 2015 –Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE: AON), shared insights on Hong Kong new Competition Ordinance, how it will impact the Human Resources function and the immediate next step for HR.
The Competition Ordinance (Commencement) (no 2.) Notice 2015 was published in the Gazette on 17 July 2015, which appoints 14 December 2015 as the date for the Competition Ordinance to come into force. This Ordinance (which was first outlined as early as 2012) restricts four types of conduct which are described as anti-competition – pricing fixing, output restriction, market sharing and bid rigging. Though not specifically targeted at employment matters, it is clear that the Competition Ordinance (CO) restricts practices like wage-fixing, exchange of wage or benefits-related information, industry-wide negotiations that impact wages and similar employment terms, and non-solicitation agreements.
From December 14, 2015, job fairs, networking events and professional seminars will be added to the Compliance Department’s watch list as the new Competition Ordinance comes into effect in Hong Kong. This new legislation will have subtle but definite implications for the HR profession.
There are specific conducts which are classified as anti-competitive and are prohibited (Chap 619, S 2, “Interpretation”). These are:
The CO prohibits collusion between competitors on prices, price calculation formulae, discounts, etc., as this hinders competition. From an HR perspective, it prohibits two or more employers from sharing verbal or written, formal or informal information on wages, benefits, allowances, bonuses and other variable pay and other terms of employment. Mere sharing of information is sufficient to be in violation of the ordinance – no proof of actual action or anti-competitive consequences are required.
The CO prohibits firms from dividing or allocating customers, suppliers or geographies among themselves, instead of allowing firms to make competitive decisions around these. In an HR context, firms are prohibited from entering into formal or informal no-poaching agreements with competitors, except in extenuating circumstances e.g., as arising from a merger or divestiture.
This is when competitors agree to limit the volume or type of goods or services they make available, as this behavior impacts the price of these goods and services in the market.
Bid rigging occurs when firms involved in a bid agree not to compete, or to compete such that a predetermined member of the group will win. In an HR context, this could extend to competing firms colluding on the hiring outcome of a candidate or a group of candidates.
It is important to note that the existence of any one or more of the conducts mentioned above could be sufficient for a firm to be in violation of the CO. Therefore, mere presence at a conversation at which sensitive information has been disclosed by a competitor, or being party to a non-binding wage-fixing agreement with competitors, could be a violation of the CO.
The Competition Tribunal has the power to take action against both individuals and companies who have contravened the CO. Potential penalties include fines, damages, voiding of agreements, director disqualifications, etc.
Immediate Next Steps for HR:
The Competition Commission has acknowledged that market benchmarking is one of the legitimate reasons for firms to share sensitive information. However, the Competition Commission advises that the information be shared with a disinterested third party, who would then disclose the information to the competitors in an anonymized and aggregated format.
While most firms participate in market benchmarking surveys for information related to base or cash compensation, many firms rely fairly heavily on ‘informal sources’ for information on salary increase projections, allowances & benefits, and trends. Collecting sensitive information from these informal sources would be a violation of the CO and firms should therefore ensure that this information is collected through a disinterested third party going forward.
Very often, firms are part of industry associations or networking groups, which meet periodically to discuss topics of interest. Sometimes, the purpose of these may be to share information that could be classified as sensitive information by the CO, eg. Employer associations which suggest reference wages or commission rates.
Firms should review all formal and informal association and networking group memberships, especially those attended by senior members of the HR team. Charters of formal associations need to be examined for compliance and modified, if necessary.Networking groups also need to agree on a list of topics that are ‘off limits’ in light of the CO.
While the CO does not apply to collective bargaining between an employer and a group of employees, any union / association which represents employees of more than one employer and which negotiates with more than one employer on wages and other employment terms, could be considered anti-competitive. Unlike some other jurisdictions with anti-competitive laws, the HK CO has not issued a blanket exemption for collective bargaining agreements. Firms need to obtain legal advice on any collective bargaining agreements and make alternative arrangements where the current ones may not be permitted. Also, any wages / commission rates, etc., which are set with reference to an ‘industry norm’ need to be audited to ensure that the method used to determine the industry norm did not involve anti-competitive activity.
Agreements which restrict hiring from a particular competitor or a group of competitors (eg. no-poaching agreements) are considered anti-competitive, except when arising out of an M&A transaction and are only in force for a finite period. In the case that such agreements are already in place, firms would need to terminate them in light of the new regulations.
Firms will need to invest heavily in training their HR teams on the implementation of the CO. It is important for HR professionals to be able to:
The CO is clear that disclosure of competitive information does not have to be in written form or in an official setting – it can be at a social occasion, over drinks, in an elevator, or even over instant messaging services. In addition to price-related information, quantity-related information like hiring strategies, headcount growth plans, etc., could also be classified as sensitive information.
Firms should also consider putting in place formal policies and guidelines that are specifically targeted at compliance with the Competition Ordinance.
The Competition Commission has publically stated that it will make every effort to partner with trade associations and industry bodies to assist in compliance. The Commission will also inform organizations if they are under investigation and rapid corrective action on the part of the organization will be viewed in a favorable light.
This is the first time that legislation like this will be enacted in Hong Kong and the CO is expected to radically change the way that business is conducted within the Special Administrative Region. As implementation of the CO proceeds, it is expected that the Competition Commission will issue further guidelines and clarifications on the CO. It is important that firms take immediate steps to ensure that they comply with the CO, as non-compliance could result in penalties for both individuals and organizations, as well as significant reputational damage, which could have far-reaching repercussions for the firm.
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