Irish Competition Authority Decisions

1. A standard contract for services between Delphi Software Ltd., (“Delphi”), and its contractors was notified to the Authority on 8 November, 1996. The notification requested a certificate under Section 4(4) of the Competition Act, 1991, or in the event of a refusal by the Authority to issue a certificate, a licence under Section 4(2).

2. The notification concerns a standard contract for services between Delphi and its contractors. The contractors perform work on behalf of Delphi for Delphi’s customers. The standard contract provides the terms and conditions under which the contractors provide service to Delphi and contain obligations by the contractors relating to confidentiality and non-competition.

3. Delphi is an Irish incorporated company providing information consultancy services. The service provided is the contracting out of skilled personnel for an agreed fee for fixed or open-ended durations. Delphi sells its services to the information departments of commercial organisations and to information technology suppliers. The contractors are self-employed independent contractors who perform work on contracts entered into by Delphi and its customers.

5. Delphi’s services consist of the supply of skilled information technology personnel. Delphi’s turnover to year end March 1995 was £2.95m. Nearly all of this turnover arose within the state. At the time of notification Delphi estimated its share in the relevant market to be less than 5%.

6. The notified arrangements involve a standard contract for services. The provisions relevant to competition issues include obligations by the contractors as to confidentiality and non-competition.

7. The confidentiality clause, (clause 5), reads as follows:

“The sub-contractor recognises the company's interest in its client and the sub-contractor undertakes the following;

The sub-contractor will not in any circumstances where he/she is providing services to the company disclose to any third party any information whatsoever regarding the affairs of Delphi Software Ltd., its subsidiaries, its associate companies or their clients transactions in business. The sub-contractor undertakes that he/she will not engage in any activity which may work against the interests of the company, with a client of the company or with its subsidiaries associate companies or its clients. The sub-contractor acknowledges this paragraph is to ensure, that information belonging to the clients of the company is not passed to outside parties by virtue of privileged information to which the sub-contractor has access.

The sub-contractor undertakes that he shall not represent himself other than as a person acting for the company in carrying out services for that company.”

8. The non-compete provision, (clause 9), reads as follows:

“The sub-contractor agrees, that for a period of contract with the company and for a period of 6 months thereafter, shall not as principal partner, director, employer, employee, consultant or otherwise engaged or employed to work for the company's client or at company's client site without the express written consent of the company.”

9. Clause 5 includes a standard confidentiality clause whereby the contractor undertakes that he will not disclose to any third party any privileged information regarding the affairs of Delphi or its customers. The applicants contend that such a clause is necessary for the proper functioning of the agreement between Delphi and its contractors and cannot be said to prevent or restrict or distort competition contrary to Section 4(1) of the Act.

10. Delphi invoke the Authority’s reasoning in Apex Fire Protection Limited/Noel Murtagh (Decision No. 20, 10th June, 1993) in support of its argument wherein the Authority stated that the restriction on confidentiality does not infringe Section 4(1) in relation to employee agreements. Delphi submit that the issues at stake here are the same as contractors have access to confidential information and Delphi has the same interest as an employer in preventing disclosure of such information to competitors or third parties.

11. Clause 5 also provides that the sub-contractor will not engage in any activity which may work against the interests of the company. This is characterised as an ancillary obligation between the parties essential to the relationship between Delphi and the contractors. Delphi submit that it does not have as its object or effect the prevention, restriction or distortion of competition contrary to Section 4(1) of the Act and does not offend the Act.

12. Clause 9 provides that the sub-contractor agrees that for the period of the contract with the company, and for six months thereafter, he shall not work in any capacity for the company’s clients or at a company client’s site without the express written consent of the company. Delphi refer to Competition Authority Decision No. 1., (Nallen & O’Toole) which states:

“The restraint must however be limited in terms of its duration, geographical coverage and subject matter to that which is necessary to secure the adequate transfer of the goodwill. Provided that this is the case then clearly the intention of such a restraint is not to restrict competition in the market in question.”

Delphi also refers to Decision No. 20, (Noel Murtagh/Apex), where, in relation to non competition clauses contained in employee agreements, the Authority took the following view:

“There is a difference between a restriction which seeks to prevent a former employee from entering the business and one which seeks only to protect the propietary interests of the employer in his own business. The Authority believes that it is essential to employer/employee relationships that an individual should not be able to take up employment solely for the purpose of gaining an introduction to the employer’s customers in order to solicit such customers. A restriction on soliciting the former employer’s customer may be regarded as essential to employers’ proprietary interests and the goodwill of his business and a normal employer/employee relationship.”

Delphi submit that the Authority should apply the same principle to its contracts for services given the similarity of the employer/employee relationship to that between Delphi and its contractors.

13. Section 4(1) of the Competition Act, 1991, as amended, states that “all agreements between undertakings, decisions by associations of undertakings and concerted practices, which have as their object or effect the prevention, restriction or distortion of competition in goods or services in the State or in any part of the State are prohibited and void.”

14. Section 3(1) of the Competition Act, 1991, defines an undertaking as “a person, being an individual, a body corporate or an unincorporated body engaged for gain in the production, supply or distribution of goods or the provision of a service.” Delphi is a body corporate engaged in providing services for gain in the State. The sub-contractors are self-employed independent contractors who are economic entities independent of Delphi and who also are engaged in providing services for gain. Therefore, Delphi and its sub-contractors are therefore undertakings within the meaning of Section 3(1).

15. In its Decision No. 20, (Apex Fire Protection Ltd./Noel Murtagh) the Authority decided that:

The Authority accepts the view advanced in the submission by Delphi that the relationship between a company and its contractors is similar in terms of the requirement for access to confidential information and for the prevention of disclosure of this information to competitors and other third parties to that between employers and employees. The Authority is therefore of the view that Clause 5 of the contract does not have as its object or effect the restriction of competition and that it is necessary for the proper functioning of the relationship between contractor and sub-contractor.

16. In relation to the non compete clause, (clause 9), the Authority is of the view that the same principles should apply to contractor/sub-contractor arrangements as those which apply to employer and employee. The Authority is of the view that as with the Apex Fire Protection/Noel Murtagh case, (Decision No.20), the restriction at issue here protects the proprietary interests of Delphi in its own business. The duration of the clause is limited in duration to the term of the contract and six months thereafter. The Authority is therefore of the view that the clause does not have as its object or effect the prevention of competition. Rather, the obligations in the clause contribute to the proper functioning of the company/contractor relationship and the protection of the proprietary interests of the company in its own business.

17. The Authority is therefore of the view that the contract for services between Delphi and its sub-contractors does not offend against Section 4(1) of the Competition Act, 1991.

18. The Competition Authority has issued the following certificate:

The Competition Authority certifies that on the basis of the facts in its possession, the standard contract for services between Delphi Software Limited and its contractors, (notification no. CA/32/96), notified on 8th November, 1996 under Section 7 does not offend against Section 4(1) of the Competition Act.

For the Competition Authority

William Prasifka

Member

1 April 1998