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June 14 2018
In recent years, there has been a selection of work-style reforms in Japan, as well as a general move away from lifetime employment and a welcoming of more diversified ways of working, such as self-employment. In this context, the Japan Fair Trade Commission (JFTC) published its Report of Study Group on Human Resource and Competition Policy on 15 February 2018. A dedicated study group, consisting of 12 members, was formed within the JFTC's Competition Policy Research Centre in August 2017 for the purpose of analysing the application of the Anti-monopoly Act to human resource (HR) practices for individual workers.
In the report, 'individual workers' are defined and referred to as "service providers", and typical examples include freelancers (eg, IT experts, journalists, editors, writers, animators, designers and consultants), as well as athletes and entertainers, who are not necessarily covered by Japanese labour laws. Before publication of the report, the study group held six meetings and conducted hearings and web-based surveys with approximately 90 stakeholders.
The United States is at the cutting edge of this area and has a history of enforcement and court judgments, particularly in the IT industry, which has made non-poaching agreements illegal. In October 2016 the US Department of Justice and the Fair Trade Commission introduced Antitrust Guidance for Human Resource Professionals, which stated that:
An agreement among competing employers to limit or fix the terms of employment for potential hires may violate the antitrust laws if the agreement constrains individual firm decision-making with regard to wages, salaries, or benefits; terms of employment; or even job opportunities.(1)
EU countries have also been active in investigating the sports sector and various court cases have analysed the transfer of professional sports players from an antitrust perspective. The JFTC has been aware of these developments and the publication of the report demonstrates how the JFTC has been looking to other overseas regulators and trying to emulate some of their approaches.
Japan's entertainment industry has a unique market environment where talent management agencies are extremely powerful and entertainers are in a much weaker position – many agencies have service agreements with their entertainers and therefore entertainers could technically fall within the scope of the report as service providers.
There are frequently stories in the news of entertainers having problems with their agencies or former agencies. Since 2016, this issue has been particularly visible in the public domain, including the issue relating to one of the most iconic J-pop groups, SMAP.
Japanese media reports that the large entertainment agencies tend to harass their former entertainers that have become independent or moved to a different agency, in an attempt to restrict opportunities to appear on television or to impose severe restrictions or working conditions on their existing entertainers. For example, the media recently reported that some entertainers are subject to long-term 'slavery' contracts with their agencies or malicious media coverage after moving to a new agency. Although such problems have existed for a long time, a rights protection association for entertainers, the Japan Entertainers' Rights Association, was only recently established.
So far there is no evidence that the JFTC has ever completed a dawn raid on any entertainment agency. However, there have been rumours that the JFTC initiated an investigation into the entertainment industry for possible violation of the Anti-monopoly Act as early as 7 July 2017 when such news was broadcast on television. This was soon followed by the JFTC's official announcement on 12 July 2017 that it would form a study group for HR and competition policy.
Although the entertainment industry would be one of the most interesting sectors for future enforcement, the JFTC is clear that the focus of its report is not limited to the entertainment industry. JFTC chairman Kazuyuki Sugimoto stated in January 2018 that "[s]ome media coverage only focused on the issues in the world of entertainment or sport but the JFTC targets much broader fields".(2) As noted earlier, besides the entertainment industry, the report covers a wide range of industries, including sports, information technology, publishing, media and journalism, animation, design and consultancy.
The main pillar of the report is the 'concerted practices' section (ie, coordination between the companies that receive services from service providers). This area is not completely new to the JFTC. In 1963 the JFTC challenged an agreement between five big film production companies (which later became six companies). The agreement prohibited the parties from screening films that were produced by other film production companies, at the parties' affiliate cinemas, if the other film production companies used an actor who had a contract with one of the parties. The agreement allegedly violated Article 19 of the Anti-monopoly Act, but the JFTC ceased pursuing the case after a relevant clause was removed, following the exit of one of the parties. More than 50 years later, the JFTC has revisited this issue through the publication of its report.
The report covers three substantive topics:
For concerted practices, the report states that:
For the latter, a typical argument is that hirers can justify such restriction because they need to recoup the large amount of money invested in training service providers. However, the report states that this is not generally a legitimate defence. Conversely, if such a restriction has the purpose of maintaining or improving the level of services provided by, for example, a professional sports league consisting of a number of teams, such circumstances are taken into account to assess the legality of conduct.
The report analyses certain unilateral conducts (eg, confidentiality obligation, non-compete obligation, exclusive obligation, restriction on use of deliverables produced through service provision and offering inaccurate hiring terms). The report makes the following key points:
The report briefly mentions activities that would be undesirable from the perspective of competition policy, including:
Foreign companies expanding their business in Japan need to examine their HR practices, particularly in relation to hiring practices for service providers. The JFTC's next course of action is still unclear and further developments should be carefully followed. However, there are many precedents around the world that the JFTC can emulate and it may pursue the same approach as other aggressive regulators. Further, there is clear societal pressure and public expectation for the JFTC to become more active in this area.
For further information on this topic please contact Kaori Yamada or Yuki Sugawa at Freshfields Bruckhaus Deringer LLP by telephone (+81 3 3584 8500) or email (email@example.com or firstname.lastname@example.org). The Freshfields Bruckhaus Deringer LLP website can be accessed at www.freshfields.com.
(1) US Department of Justice, US Fair Trade Commission, Antitrust Guidance for Human Resource Professionals, October 2016.
(2) The JFTC 2018 New Year Message from Chairman Sugimoto, January 2018.
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