Does ‘no poaching’ violate competition law?

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TERESE RAY ANNE AQUINO

TODAY, August 8, marks the end of the transitory period of the effectivity of the Philippine Competition Act (PCA), or Republic Act 10667. This means companies caught by the Philippine Competition Commission (PCC) engaging in anti-competitive conduct will be penalized accordingly. The sanction is not a mere administrative fine, but also includes criminal liability that is punishable by imprisonment and hefty fines. The goal of the PCA is a competitive marketplace because free and open competition benefits the consumers ultimately as it ensures lower prices of goods/services and better and innovative products. Who wouldn’t want the best product at the lowest price possible?

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The PCA’s Section 14(a) prohibits price-fixing and bid manipulation agreements; Section 14(b) prohibits any agreement that substantially prevents, restricts or lessens the competition. This is only the general idea of the anticompetitive agreements between competing firms under Section 14. But proving whether such agreement defeats competition will require an in-depth economic analysis.

If you are following PCC’s Facebook account, they are doing a great job campaigning and educating the consumers and business firms of the kinds of conduct that are illegal under PCA. However, an economist has characterized the Philippines as a country that lacks the culture of competition. Many Filipino consumers may have never heard of the competition law and many may not even be aware what benefit it will bring if enforced effectively. Through the PCA, eventually we will no longer hear ourselves complaining how slow the Internet connection is or how bad the phone services for which we are paying a lot.

Non-compete agreements
Anticompetitive agreements are not limited to price-fixing, bid-rigging, cartels, and market allocation. PCA broadly covers the activities of firms engaged in any trade, industry and commerce in the country or which affects the country. Could the PCA also cover the hiring of employees?

Many of the employers, particularly in the IT BPO sector, are familiar with “employee poaching”. It is a practice of recruiting talented employees from competitors by a human resource recruiter, a practice that is widely accepted in the Philippines. While a non-compete agreement between an employee and employer is valid as long as it is reasonable, an agreement among competing firms (i.e., among employers) not to recruit or hire each other’s employees may have an anticompetitive implication.

In the US, Apple and Google agreed not to “cold call” (uninvited job-hunting) each other’s employees. This agreement is evidenced by an express communication between senior executives of Apple and Google. The agreement covered all employees of both firms and was not limited by geography, job function, product group, or time period. In addition, Apple has an internal “do not call list,” an instruction to its HR not to actively solicit employees from the listed companies. Apple’s “do not call list” includes Google. This is the same as the no-poaching agreement entered into by Lucasfilm and Pixar. The “no cold call agreement” and “no-poaching agreement” are said to be “facially anticompetitive because they eliminated a significant form of competition to attract high tech employees, and overall, substantially diminished competition to the detriment of the affected employees who were likely deprived of competitively important information and access to better job opportunities.”

In effect, US competition laws recognize “employment market” as a distinct market where competing firms compete to hire or retain employees. According to the US Federal Trade Commission, even if competing firms are driven by a desire to reduce costs by agreeing not to compete in terms of hiring, it is still illegal under the law. Competition among employers will allow the potential employees to get better jobs through higher salaries, better benefits and terms of employment.

A major headache
In our jurisdiction, poaching of employees in the IT BPO industry is said to be a “major headache” for HR managers. During the Business Processing Association of the Philippines’ (now IT and Business Processing Association of the Philippines, or IBPAP) general membership meeting in November 2011, it was reported that an “industry anti-poaching guidelines” draft by IBPAP’s Legcom (Legislative Committee) was submitted to the board. In 2010, a Voluntary Code of Good Practices on decent work in the ICT-BPO industry in the southern Mindanao region was put in place by the various ICT-BPO companies in Davao. The voluntary code is self-policing and is enforced by the will of the organization accepting it to maintain the standards laid down in the code. One of the provisions states “[w]e do not practice poaching of talent between and among ourselves, and instead cooperate with each other in promoting and exemplifying good practices in recruitment, talent development, training, job enrichment, career pathing (sic) and planning, compensation administration and employee welfare.” This voluntary code was even sanctioned by the Department of Labor Region 11’s Tripartite Industrial Peace Council. Another variety of this no-poaching agreement is the so-called “gentleman’s agreement,” where one university will have an agreement, albeit unwritten, with another university not to try to recruit each other’s senior faculty.

One of the important assets of the company is its investment in human capital. After years of investing and training an employee, a company would be very worried if its employee will suddenly leave and work for another competing company; it’s like a losing investment. In order to cushion this, employers provide their employees incentive or disincentive. On one hand, incentives may be in a form of benefits, higher pay, bonuses and other perks that will make an employee stay in the company. On the other hand, disincentives are the restrictive covenants that will govern the post-employment. As for instance, an employee cannot go to work for a competing company in Metro Manila for a certain number of years. While restrictive covenant is enforceable as long as reasonable, it does not fully protect the human capital investment of a company. As such, some companies take it to the extreme by entering into a no-poaching agreement, no call list, or gentleman’s agreement with another company to retain and protect its most precious asset—its employees.

Unfair to employees
Applying the PCA, this no-poaching agreement will most likely violate Section 14 (b), which prohibits an agreement among competitors to set, limit, or control a market. Just like in the market of selling goods, where competition motivates companies to offer the best product at the lowest price possible to attract consumers, competing employers too, must be motivated to offer the best terms of employment to attract the best employees. If competing companies are allowed to set a standard for the wages and terms of employment of their potential employees, or if they agree, either in a form of contract or a code of ethics, not to recruit each other’s employees, then the workforce is bound to suffer. In fact, US jurisdiction treated some of these agreements as illegal per se (e.g., wage fixing).

While I have yet to see this policy or practice of non-poaching in our BPOs, we could infer that these companies at one point have entertained the thought of defeating the competition in the employment market like Apple, Google, Lucasfilm, and Pixar. Does this mean no poaching agreement is illegal under the PCA? Since there is no jurisprudence interpreting Sec. 14, the law is broad enough to include this kind of no-poaching agreement among employers. Moreover, the rationale why no-poaching agreements harm competition is consistent with the goals and objectives of the PCA. Further, US antitrust law has been there for more than a century and we could learn a lot from their experience in promoting competition. Lastly, if you are a lawyer, in a statutory construction’s perspective, US jurisprudence has always been regarded a secondary authority, i.e., persuasive. Nonetheless, at this juncture, we still have to hear from the PCC, the primary authority in competition matters.

The PCA is still a novel piece of legislation insofar as the Philippines is concerned. Its lack of precedents makes it a challenge to the PCC and the judiciary, who are tasked to set precedents for the future of competition and to frame a strong Philippine antitrust policy in the years to come.

The author is a senior partner at the Estrada & Aquino Law firm. She recently completed her Master of Laws (LL.M) in Global Business Law at the University of Washington of School of Law, Seattle, USA.

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