05 May 2016

Competition Commission addresses employment contract concerns

This article was written by Neil Carabine, James Wilkinson and Matthew Howlett.

The Competition Commission has published new “Frequently Asked Questions” that provide insight into whether non-compete clauses in employment contracts breach competition law.

The FAQs answer common questions received by the Commission since the Competition Ordinance (Cap. 619) came into full effect on 14 December 2015. The Commission said it received around 750 enquiries and complaints in the first two months of the law’s operation.

Non-Compete Clauses in Employment Contracts

Many employment contracts restrict an employee from joining competing companies after termination of the contact. Non-compete clauses are unlikely to breach the Ordinance unless they are of an unduly long duration, according to the Commission.

Competition law concerns may arise if employers do not act independently in deciding whether to include a non-compete clause. Employers must not share or agree with competitors the terms and conditions of employment contracts.

In addition, non-compete clauses may breach the Ordinance if they relate to an expertise which is in very limited supply. This is likely to be of particular concern if the employer has a substantial degree of market power in a market.

Collective Bargaining

The Commission has previously advised that trade unions may continue to act on behalf of their members in collective bargaining with employers. Arrangements with respect to employees’ salaries and conditions of work agreed during collective bargaining fall outside the scope of the law, according to the Commission’s Guideline on the First Conduct Rule.

Exclusivity Clauses in Employment Contracts

Exclusivity clauses in employment contracts may breach the Ordinance in some circumstances. In Television Broadcasts Limited v Communications Authority and Anor [2016] HKEC 238, the Court of First Instance agreed with the Communications Authority’s assessment that Television Broadcasts Limited’s (“TVB”) exclusivity clauses were anti-competitive. The clauses imposed restraints on the ability of artists to work for rivals. This denied TVB’s rivals access to 90 percent of the singers in Hong Kong. The Court ruled that the clauses were an abuse of TVB’s market power.

The Commission’s FAQs supplement guidelines issued by the Commission in July 2015 on the application of the Ordinance.

Originally published in the April 2016 edition of Hong Kong Lawyer

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