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The First Chinese Court Decision On Antitrust Issues In Labor Markets

 |  April 19, 2022

By: Cunzhen Huang, Yiming Sun & Huanbing Xu (Cleary Antitrust Watch)

This post will soon be published on LEXIS Antitrust Report.

Antitrust enforcement in labor markets has become a focus of the U.S. antitrust regulators in recent years, with particular scrutiny on agreements between employers not to recruit or solicit each other’s employees—so-called “no poach” agreements.  In a recent decision, a court in China held no‑poach and employee compensation-fixing agreements to be illegal, the first such court decision in the country.  The court’s decision, however, reveals the difficulties in analyzing no-poach agreements within China’s existing antitrust regime and analytical framework.  This article provides an overview of the Chinese court’s reasoning in its recent decision and a comparative assessment to the approach in the United States.

II. China’s Antitrust Enforcement on Restrictive Agreements in Labor Markets

While there have been aggressive investigations and challenges of no-poach agreements across different industries in the United States, until recently the Chinese antitrust authority had not publicly investigated or penalized any alleged no-poach agreements or other anticompetitive practices in labor markets.  In December 2021, the Chinese Supreme People’s Court (the “SPC”), the highest court of the People’s Republic of China, issued a judgment involving no-poach and employee compensation-fixing agreements (including wage-fixing and other benefits-fixing agreements) and finding them illegal under China’s Anti-Monopoly Law (the “AML”).

Case Background and Procedural History

The case (the “Driving School Case”) concerns an alleged horizontal agreement in the form of a joint venture arrangement (the “JVA”) entered into by fifteen local driving schools and a related “disciplinary protocol” that implemented the JVA (the “Disciplinary Protocol”).  As explained below, certain provisions of these agreements concern alleged no-poach and employee compensation-fixing agreements.  The agreements also fixed the price charged to driving school students and stipulated that all new products in the future shall be jointly developed by all fifteen driving schools. 

Two of the driving schools withdrew from the JVA around one year after the establishment of the joint venture, and sued the other thirteen in a local court in Ningbo, Zhejiang Province, alleging that the JVA and its associated agreements constituted unlawful horizontal agreements that restricted competition in the local market for driver training services. 

The plaintiffs sought to have the entire JVA invalidated, including the no-poach and employee compensation-fixing agreements, the price-fixing agreement, and the joint product development agreements, as well as the fundamental provisions of the JVA relating to its underlying shareholding structure.  In the initial ruling, the lower court in Ningbo ruled partially in favor and partially against the two plaintiff schools…