Irish Competition Authority Decisions

1. This decision concerns a contract of employment between Peter Mark and Ms. Majella Stapleton. who is now a former employee of Peter Mark. The arrangements were notified to the Competition Authority on 30 September, 1992 under Section 7 of the Competition Act, 1991 for the purpose of obtaining a certificate under Section 4(4) or, in the event of a refusal by the Authority to issue a certificate, a licence under Section 4(2). Both parties were given an opportunity of commenting upon the proposed decision before it was taken by the Authority. No response was received from either party.

2. The decision concerns solely the contract of employment between Peter Mark and Ms. Majella Stapleton.

3. Peter Mark is an unlimited company carrying on the business of hairdressing. It is a subsidiary company of Glenberg, also an unlimited company which is a property holding company not involved in the hairdressing business.

4. Majella Stapleton is a hair stylist who was employed by Peter Mark in Sligo as a stylist between July, 1990 and September, 1992. She is currently employed at a David Martin salon in O'Connell Street, Sligo. Ms. Stapleton was trained by Skolars Training School, Thomas Street, Limerick, (a course of one year's duration which cost £2,800). She worked in a salon in Galway for six months and in a salon in London for one year prior to commencing employment with Peter Mark. Civil proceedings were instituted by Peter Mark to enforce the restraint provisions contained in her employment contract after she had left their Sligo salon.

(c) The service and the market

5. The service in this case is the provision of hairdressing and hairstyling services. The relevant geographic market is the Town of Sligo and its immediate environs. Peter Mark has one hairdressing salon in Sligo out of a total of some 30 salons. In the State as a whole, it is understood that there are approximately 3,000 to 3,500 hairdressing salons of which about 1,000 are in the Dublin area. Peter Mark have stated that they have 48 salons in the State.

6. There are no entry requirements to the hairdressing profession and anyone is free to set up a hairdressing salon, subject to compliance with planning, safety and health regulations. A salon over a period of time builds up a clientele. A salon located in a prime shopping centre or a high street position, where there is much passing trade, can build up its clientele much more quickly than salons in less favourable locations. It take about six to twelve months for a new stylist

to build up a personal clientele. It is claimed that the stylist becomes an asset of the salon having built up a personal clientele, and is in a position to bring those clients on leaving the salon since many clients tend to stay with the same stylist.

7. There are between 12,000 and 16,000 people employed in the hairdressing industry according to the Irish Hairdressers Federation which represents about 850 hairdressing businesses. The Federation considered that employment contracts were used only by the bigger firms and non-competition clauses were included in some written employment contracts but were considered difficult to enforce. It appears from enquiries made that the practice of using written employment contracts and of having non-competition restraints is not widespread in this industry.

8. The contract of employment between Peter Mark and their former employee, Majella Stapleton, was made on 16 July, 1990 on commencement of her employment with Peter Mark. The relevant clauses in the notified agreement in these proceedings are clauses 4, 5 and 6 which provide as follows:

Clause 4 - "The Employee upon ceasing employment with the Employer shall not take up employment with any competitor of the Employer no commence business in competition with the Employer within a radius of one mile of Peter Mark, Wine Street, Sligo for the term of six months from the date that such employment ceases".

Clause 5 - "As and from the termination of the employment the Employee shall not canvas, circularise or solicit business from the Employer's customers using the name Peter Mark".

Clause 6 - "In the event that the restraint provisions in this contract are modified by any court, then such provisions as are considered reasonable by such court shall apply in lieu of the foregoing provisions".

9. Peter Mark submitted that Ms. Stapleton as not and never became an undertaking as defined by the Act. Ms. Stapleton was formerly an employee of Peter Mark and subsequently became an employee of David Martin. At no time was she conducting business on her own account. They relied on the principles of the European Court of Justice in the Suiker Unie case [1] referred to in the Competition Authority Notice on Employee Agreements. [2] The Suiker Unie case was applied by Judge Esmond Smyth in the case between Peter Mark v. Marcus Daly in the Circuit Court (No. 4) on 21 July, 1992 where he determined that Marcus Daly (a former employee of Peter Mark, Rathmines) was not an undertaking for the purposes of the Competition Act, 1991.

10. Peter Mark also presented arguments in support of their request for a certificate or a licence in respect of clauses 4, 5 and 6 of the notified agreement. Since the Authority accepts the submission that Ms. Stapleton is not an undertaking for the purposes of the Act (see para. 17 below), it is not necessary to set out or consider these arguments.

11. The solicitors on behalf of Ms Stapleton submitted that Ms Stapleton is an undertaking within the meaning of the Act and profits from an increase in business which is attributable to her employment in David Martin's Hair Salon. They submitted that their client profited directly from an increase in business in the David Martin Salon through the payment of a commission rate on business and this rate would increase after she has worked for six months in the salon. She had not been requested to give a covenant to refrain from working or competing after termination of her engagement with the David Martin Salon.

12. They further submitted that it was their client's belief that Peter Mark and associated undertakings of Peter Mark sought to restrict all trainees and qualified staff in a manner similar to the restrictions in the notified agreement. The solicitors on behalf of Ms Stapleton claimed that significant barriers to entry in the hairdressing business had been created by those undertakings trading under the name "Peter Mark" and other hairdressing businesses with substantial numbers of trainees and newly qualified personnel.

13. Peter Mark was refused an injunction implementing the non-competition clauses in Majella Stapleton's employment contract in the High Court in September, 1992. Mr Justice Barron said that the main issue was the balance of hardship. He discharged the interim injunction on the basis of Ms Stapleton's undertaking to keep a list of new customers. The full case has yet to be heard.

14. Section 4(1) of the Competition Act, 1991 prohibits and renders void all agreements between undertakings, decisions by associations of undertakings and concerted practices which have their object or effect the prevention, restriction or distortion of competition in trade in any goods or services in the State, or in any part of the State.

15. Section 3(1) of the Competition Act defines an undertaking as 'a person being an individual, a body corporate or an unincorporated body of persons engaged or gain in the production, supply or distribution of goods or the provision of a service'.

16. Peter Mark, an unlimited company and subsidiary of Glenberg, is a body corporate engaged in the provision of hairdressing and hairstyling services for gain and is therefore an undertaking within the meaning of the Act.

17. The Competition Authority in its Notice on Employee Agreements and the Competition Act outlined its views on the employee as an undertaking and on agreements between employers and employees. It is stated there that:

"the Authority does not consider, however, that employees as such are undertakings within the meaning of the Act. Employees normally act on behalf of an undertaking and do not, therefore, constitute an undertaking themselves. This view is in accord with that expressed by the European Court of Justice in the Suiker Unie case, which involved Article 85(1) of the Treaty of Rome, upon which Section 4(1) is based. The Court indicated that employees should be regarded as an integral part of the undertaking which employed them and were not therefore undertakings themselves. The view that employees are not undertakings was endorsed in a written answer to the European Parliament by the EC Commission in relation to professional soccer players which stated that:

'individuals participating in professional sports normally do so as employees of a club on the basis of an employment contract and as such are not undertakings. [3]

Although, there is a difference between Irish and EC legislation, in that the Irish Act defines an undertaking as being engaged for gain, the Authority believes that employees as such should not be regarded as undertakings under Section 4 on the basis of the reasoning advanced by the Court of Justice in the Suiker Unie case'. As it does not consider that employees are undertakings, the Authority believes that an agreement between an employer and an employee is not an agreement between undertakings and is not therefore within the scope of Section 4(1). It follows also that an employment agreement as such is not notifiable to the Authority, as Section 7(1) and (2) of the Act only provide for the notification of agreements of a kind described in Section 4(1)".

18. In its decision in the Aga Khan case [4] the Authority indicated that it:

"had also taken the view that the provisions of Sections 4(1), 4(4), 7(1) and 7(2) taken together, imply that an agreement may be notified, and a certificate requested, where the parties are in some doubt as to whether that agreement would offend against Section 4(1), but not otherwise. In the Authority's view, there must be reasonable grounds for such doubts".

19. In the Notice on Employee Agreements it was further indicated by the Authority that once an employee leaves an employer and seeks to set up his or her own business they would then be regarded as an undertaking. The Authority, however, did not deal directly with the question of an employee taking up employment with another employer in the Notice. It was also noted that Van Bael & Bellis, had in the context of Article 85, stated:

'However, from the moment an employee pursues his own economic interests, and where they are different from his employer's interests, he might well become an undertaking within the sense of Article 85'. [5]

20. Ms Stapleton's solicitors have claimed that she is an undertaking within the meaning of the Competition Act because she profits directly from an increase in the business of her employer through the payment of a commission. For these reasons the Authority believes that there was reasonable doubt in this instance, and it has considered the notified agreement in the context of the Competition Act 1991.

21. Majella Stapleton was employed by Peter Mark from July, 1990 to September, 1992 as a stylist. She left Peter Mark to take up employment in a competing hairdressing salon. Her position with Peter Mark was solely that of an employee. Her position with her new employer is also solely that of an employee. She had or has no ownership or control in her previous or present employment. The fact that Ms Stapleton is paid partly on a commission basis and, as a result, benefits directly from any increase in business, is not sufficient to establish, in the Authority's view, that she is an undertaking by virtue of pursuing her own economic interests. Accordingly, in the Authority's view she was not and is not an undertaking under Section 3(1) of the Competition Act, 1991.

22. The position would of course be wholly different if Ms Stapleton were seeking to set up her own business. As the notified agreement is, therefore, not an agreement between undertakings the arguments submitted by Ms. Stapleton's solicitor in support of a certificate or a licence in relation to Clauses 4, 5 and 6 need not be considered by the Authority.

23. This decision applies solely to the contract of employment between Peter Mark and Ms Majella Stapleton, dated 16 July 1990. In the opinion of the Authority, that contract does not constitute an "agreement between undertakings" for the purposes of the Competition Act, 1991 because one of the contracting parties, Ms Stapleton, was not at any material time an "undertaking" within the meaning of the Act. Accordingly, the agreement, not being "of a kind described in Section 4(1)", falls outside the scope of Section 7 of the Act and the Authority refuses to grant a certificate or a licence under the Act.

For the Competition Authority

E. Carey

Member.

18 February, 1993.