Irish Competition Authority Decisions

1. Notification was made of a standard agreement with certain contractors by Premier Tir Laighean Society Ltd. (Premier), Dealgan Milk Products Ltd. and Midland Dairies Ltd. on 17 July 1992 with a request for a licence under Section 4(2) of the Competition Act, 1991. A statement of objections was issued on 19 September 1994, following which Premier made amendments to the agreement which were acceptable to the Competition Authority.

2. The notified agreement provides for the appointment by the dairies of contractors whose function is to deliver liquid milk and other dairy products to distributors outside the Dublin area for onward delivery to households and shops.

3. Premier Tir Laighean Society Ltd. is an industrial and provident society. Its only trading subsidiaries are Premier Dairies Ltd., Hughes Dairy Ltd., Dealgan and Midland. Premier is involved in the business of purchasing, processing and selling milk and related products. At the time of notification, Premier was jointly owned by Waterford Cooperative Society Ltd. and Express Food Group Ireland Ltd. Subsequently, Express disposed of its interest to Waterford, and Premier is now a wholly owned subsidiary of Waterford. The contractors, of whom there are 11 in total, are independent operators, who were formerly employees of Premier. Their addresses are in Dublin, Co. Wicklow, Dundalk and Co. Tipperary.

4. The main product involved is liquid milk which is ultimately sold to consumers on the doorstep and in retail outlets. Among the other products involved are butter, cream, eggs, yogurt, cheese and fruit juices. According to Premier, the service was the delivery of these products to local distributors. The relevant market was that for haulage. The services carried out by the contractor, according to Premier, could be carried out by anyone with a suitably equipped vehicle. Premier stated that the service formed only a small portion of the total delivery market in Ireland, and it estimated it to account for less than 1% of the total market. The Authority does not believe that the relevant market is that for the haulage of goods generally. Nevertheless any vehicles with cooler facilities suitable for delivering fresh produce could be used for the delivery of liquid milk in bottles and cartons. Therefore the relevant market is that for the delivery of fresh produce in refrigerated vehicles and clearly the notified agreements represent a somewhat higher proportion of that market than of the overall haulage market. The relevant geographical area is that in which the service is being provided, that is primarily Leinster, excluding the Dublin area.

5. Premier submitted a standard agreement between Premier and one of its contractors. There are seven such agreements in existence. It stated that the same agreement, with minor differences, was used by Dealgan (3 contractors) and Midland (1 contractor). The specific agreement was made on 17 December 1991, and the contractor was appointed one of Premier's contractors to deliver the product specified to Premier's distributors as required from time to time. The agreement is to continue in force for an initial term of three years, and thereafter until properly terminated. The contractor agrees to provide and maintain a suitable tractor unit capable of connecting with Premier's trailers, and to collect products from the depot and to deliver them according to a schedule listing the relevant distributor, which could be altered from time to time. The contractor is required to collect and return all containers, take orders and collect debts and pay these to Premier. The contractor is not to use the vehicle during the term of the agreement in the distribution of competing products within a specified area, or in the distribution or delivery to any Premier distributors of competing products. The contractor is obliged not at any time to reveal any confidential information regarding Premier's affairs or business. He must refrain from delivering to distributors or persons other than those specified. He must not bind Premier or hold himself out as its agent. Premier agrees to pay delivery fees to the contractor, related to each gallon delivered and annual mileage above a certain level. The contractor is required to maintain in force insurance in respect of the vehicle, the load of products and containers, and public liability and employers' liability, and must indemnify Premier against all loss and damage caused by the contractor. The agreement may be terminated by either party after three years on giving 60 days' notice. Premier agrees to appoint only seven contractors unless volumes increase. The agreement is stated not to constitute a partnership or agency. Reference is also made to a side letter (see below) which forms part of the agreement.

6. One clause of the agreement was of particular note, that is clause 6(m), under which the contractor accepted the obligation:

'that he will not during the term of this Agreement or for twelve months after the termination (howsoever arising other than as a result of the liquidation of the Company) hereof be interested or engaged either directly or indirectly:-

(i) in the distribution within Counties Dublin, Louth, Meath, Kildare, Laois, Wicklow and/or Wexford of any products competing with the Products; or

(ii) in the distribution or delivery to any Distributors (or persons who are Distributors at the time this covenant is sought to be enforced or who were Distributors within six months prior to such enforcement) of any products competing with the Products'.

7. The side letter referred to such matters as the gross income, redundancy/changeover terms, cessation/ discontinuation/non-renewal of contract, the contract, vehicle provision and transfer, spare vehicles, insurance and bonus. (Premier was to sell a vehicle to each contractor at an agreed price). Furthermore, clause 5 provided that the terms for cessation of contract were subject to full adherence with the non-competition clause in the contract. In this connection, a retention amount of 10% of the redundancy sum due was to be retained by Premier, and paid at the conclusion of the 12 month period if the non-competition clause had been complied with.

8. Premier stated that the Dealgan and Midland agreements differed slightly from the Premier agreement, particularly in relation to the geographic extent of the non-competition clause, and the manner of payment of the contractors and the terms of the redundancy package.

9. In its initial submission, Premier stated that the purpose of the agreements was to procure an efficient and reliable system of delivery for its products outside the Greater Dublin area. The chain of distribution was Premier to contractor to country distributors to doorstep/shop. The contractor was fulfilling a service function by delivering to country distributors, and he did not take title to the products. This function was previously undertaken by employees of Premier, but, as a result of an ongoing rationalisation programme, this function was now being carried out by independent contractors. These were known as 'delivered distributors' to distinguish them from collected distributors' who collected products from Premier for sale directly to consumers or retail outlets. Collected distributors were generally based in Dublin. (Agreements with these other distributors are the subject of separate notifications). Premier also submitted arguments in support of its request for a licence which are not considered in this decision.

10. Following the issue of a statement of objections, Premier proposed to amend the notified agreement as follows:

(a) removing the post-termination non-compete clause by the deletion of the words "or for twelve months after the termination (howsoever arising other than as a result of the liquidation of the Company) hereof" from clause 6(m); and

(b) confirming that a failure on the part of the contractor to comply with the terms of clause 6(m) (as amended) would not of itself disentitle the contractor to the outstanding amount of the redundancy payment (clause 5 of the side letter). Premier submitted a copy of a letter to one of its contractors, Mr Tom McGovern, dated 4 January 1995, making the above amendments to the agreement, which was counter-signed by Mr McGovern.

11. Section 4(1) of the Competition Act, 1991 prohibits and renders void all agreements between undertakings which have as 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.

12. 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 for gain in the production, supply or distribution of goods or the provision of a service". Premier, Dealgan and Midland are engaged in the supply and distribution of goods for gain, and the contractors are engaged in the distribution of goods for gain. They are all therefore undertakings, and the standard agreement is an agreement between undertakings. It has effect within the State.

13. The essential feature of the notified agreement is that the contractors, who are former employees of Premier, collect milk and other products from Premier for delivery to Premier's country distributor customers; in return for the performance of this service, the contractors are paid a fee by Premier. The agreement does not involve the purchase and resale of the products by the contractors. While the contractors do take orders and collect debts from the customers, they are not involved in any sense in selling the products, and they cannot be considered to be commercial agents of Premier nor are they employees of Premier. The Authority considers that the agreement involves merely the delivery of Premier products by the contractors on an exclusive basis. It considers that undertakings are entitled to decide how their products shall be distributed to their customers. Premier has decided that, rather than deliver its goods itself, it should use contractors, the ones appointed initially having previously been employees. In general, distribution agreements involving delivery only do not, in the Authority's opinion, offend against Section 4(1) of the Competition Act.

14. While a delivery agreement might not per se offend against Section 4(1), certain clauses in the agreement might offend. The Authority considered that none of the clauses in the standard agreement offended against Section 4(1), except clause 6(m), which prevented the contractor from distributing competing products in the area and from distributing or delivering competing products to any distributor of Premier during and for 12 months after termination of the agreement. The Authority has no objection to a non-compete clause while the agreement is in existence, but it considers that a post-termination non-compete clause offends against Section 4(1). The Authority has accepted in the case of a sale of business that a restriction on the vendor competing with the business for some time after the sale does not offend against Section 4(1). The notified agreement, however, did not relate to a sale of business and its accompanying goodwill. It arose from a decision of Premier to alter its method of distributing its products from using employees to using self-employed contractors. Given that the vehicles bear the Premier logo and that the contractors may wear Premier uniforms, there is undoubtedly goodwill which belongs to Premier involved in these arrangements, but it remains with Premier. Premier was seeking to prevent the contractor competing with Premier for one year after the termination of the distribution agreement. Such an obligation restricted competition, and it went beyond what was necessary to secure the successful operation of the distribution agreement. The Authority has not allowed post-term non-compete provisions in its category licence for exclusive distribution agreements (Decision No. 144 of 5 November 1993), and it has indicated that such provisions in an employment contract would offend against Section 4(1) if the former employee intended to establish his own business (Notice on Employee Agreements, Iris Oifigiuil, 18 September 1992, pp. 632-3). The Authority also noted that, in the present case, part of the initial compensation payment to the contractor under the redundancy scheme was being withheld to ensure compliance with the non-compete provisions. The Authority regards any payment to ensure that competition is prevented or restrained as offending against Section 4(1) of the Act. The Authority also considered that these clauses went beyond what was necessary to secure the successful operation of the distribution agreement. Since they were not indispensable to the attainment of the objectives of the agreement, they did not satisfy the conditions of Section 4(2) of the Act.

15. Given the amendments to the agreement, which delete the post-termination non-compete provision in clause 6(m) and reference to withholding the redundancy payment in relation to non-adherence to the non-compete provision in clause 5 of the side letter, the Authority considers that the amended agreement with Mr McGovern no longer offends against Section 4(1) of the Act.

16. In the Authority's opinion, Premier and its subsidiaries and the contractors are undertakings and the notified agreement is an agreement between undertakings. The Authority considers that the notified milk distributors agreement offended against Section 4(1) of the Competition Act, 1991, and that it did not satisfy the conditions set out in Section 4(2) of the Act. The Authority considers, however, that the agreement, as amended, does not offend against Section 4(1) of the Act.

17. The Competition Authority has issued the following certificate:

The Competition Authority certifies that, in its opinion, on the basis of the facts in its possession, the Premier milk distributors agreement (notification no. CA/55/92), notified on 17 July 1992, under Section 7(1), as amended by the agreement of 4 January 1995 between Premier Dairies Ltd and Mr Tom McGovern, does not offend against Section 4(1) of the Competition Act, 1991.

This certificate shall also apply in respect of the Premier milk distributors agreement where it has been amended to accord with the agreement with Mr Tom McGovern.