14 August 2023

Chinese Antitrust Authority Regulates No-Poach Agreement For The First Time



In late July 2023 Chinese antitrust authority (State Administration for Market Regulation, "SAMR") summoned four leading pig breeding enterprises in China for warning them of their "No-Poach Pact".
China Antitrust/Competition Law
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In late July 2023 Chinese antitrust authority (State Administration for Market Regulation, "SAMR") summoned four leading pig breeding enterprises in China for warning them of their "No-Poach Pact". Previously on 20 June 2023, Muyuan Food Co., Ltd., Wen's Foodstuff Group Co., Ltd., The Twins Group Co., Ltd., and Chia Tai Investment Co., Ltd publicly signed a "No-Poach Pact" in a conference. Such pact is essentially a no-poach agreement, a typical monopoly agreement in the human resources (HR) field along with wage-fixing agreements. This incident marks the first time that SAMR has taken action against a no-poach agreement. Although SAMR did not impose a fine, the warning as a "yellow card" has significant declarative implications and should be taken seriously by enterprises.

I. The Regulation of Monopoly Agreements in the HR Field by China's Anti-Monopoly Law

China's anti-monopoly legal system does not specifically address monopoly agreements in the human resources field. Generally, only the catch-all provision of the Anti-Monopoly Law (namely Article 17, Item 6) can regulate such agreements. Also, monopoly agreements in the human resources field have not traditionally been the focus of anti-monopoly theory and practice in China and have, to some extent, become a blind spot in law enforcement.

In nature, no-poach agreements between competitors are horizontal monopoly agreements. The revised Anti-Monopoly Law establishes stringent legal liabilities for them, potentially incurring fines ranging from 1% to 10% of the violators' turnover in the previous year. Even if the agreement has not been implemented, fines up to 3 million yuan may be imposed. In addition, the legal representatives, persons in charge or directly liable persons of enterprises will face personal liabilities and may be fined up to 1 million yuan. For cases with significant adverse effects and severe consequences, SAMR has the power to increase the aforesaid fines by two to five times.

Anti-Monopoly Law

Article 17

Competing undertakings are prohibited from concluding the following monopoly agreements:

(1) that fix or change the price of goods;

(2) that limit the quantity of goods manufactured or sold;

(3) that divide the sales market or procurement market of raw materials;

(4) that restrict the purchase of new technology or new equipment or restrict the development of new technology or new product;

(5) that jointly boycott transactions;

(6) of other types as determined by the Anti-Monopoly Law Enforcement Authority of the State Council.

II. Regulatory Talk Introduced by the New Anti-Monopoly Law

The way SAMR regulated the no-poach agreement in this case is called regulatory talk, which is a new "soft" measure introduced in the amendment to the Anti-Monopoly Law in 2022 (compared to the more "rigid" administrative fines). It is stipulated in Article 55 of the new Anti-Monopoly Law, with the applicable condition being "suspected of violating the provisions of this law". The subjects of the regulatory talk can be "undertakings, administrative agencies and organizations empowered by laws or regulations to administer public affairs". After the revision of the Anti-Monopoly Law, supporting regulations such as Provisions on Prohibition of Monopoly Agreements, Provisions on Prohibiting Abuse of Dominant Market Position, and Provisions on Curbing the Abuse of Administrative Power to Exclude or Restrict Competition have all officially introduced this "soft" enforcement tool. In fact, regulatory talk is not unique to anti-monopoly laws. In other regulatory practices, authorities such as the People's Bank of China have already implemented regulatory talks many times.

Regulatory talk is considered an administrative guidance measure. According to the Working Rules for Administrative Guidance by Administrations for Industry and Commerce formulated by SAMR's predecessor the State Administration for Industry and Commerce, administrative guidance is applicable in situations such as promoting the development of the administrative counterparty's business, preventing the administrative counterparty from violating the law, and when laws and regulations have not specified regulatory measures. In June 2023, the Beijing Municipal Administration for Market Regulation issued the Working Rules for Administrative Guidance by Beijing Municipal Administration for Market Regulation, which specifically stipulated administrative regulatory talk. It provides that regulatory talk is applicable to "situations where the administrative counterparty's internal system is lacking, minor violations of laws and regulations have occurred without causing harmful consequences, or when inspection reveals problems commonly seen that may affect its lawful operations".

The recent regulatory talk with four pig breeding enterprises was publicly reported by SAMR, which is aimed to warn not only these four enterprises but also all other companies that monopoly agreements in the human resources field are in SAMR's crosshairs.

III. Compliance Tips for In-House and HR Manager

A reasonable, unobstructed, and orderly flow of labor is vital for the standardized, healthy, and sustained development of an industry. With the current economic growth facing new challenges and "employment being the most fundamental livelihood", the competitive order of the labor market is gaining increasing importance and attracting more attention. Now that such monopolistic agreements have officially entered the radar of China's antitrust agencies, it is expected that administrative penalties may arise in the human resources field in China.

For people in charge of legal and human resources matters in companies, the following compliance tips will be helpful to avoid potential antitrust risks:

First, refrain from entering into wage-fixing or no-poach agreements with competitors. Such agreements pose significant legal risks in major jurisdictions globally. Past agreements with such terms should be reviewed and abandoned, and any initiation or participation in such agreements in the future should be avoided.

Second, avoid exchanging sensitive competitive HR information, such as salaries, with competitors. High-risk scenarios include multi-party communication events and industry association activities. If organizers request such information exchanges, one should voice clear opposition and document it to prevent becoming an implicit participant in a monopolistic agreement.

Third, keep abreast of anti-monopoly legislation, enforcement, and judicial trends in all relevant jurisdictions. Even the most comprehensive compliance systems can have oversights. Staying informed of anti-monopoly trends can help companies formulate targeted contingency plans, take actions in time such as submitting leniency applications, and minimize losses when facing enforcement actions.

Finally, remind the management of their potential personal liabilities that the revised Anti-Monopoly Law has designed for them if the management would like to push for a no-poach agreement or other horizontal monopoly agreements in the HR field.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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