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CMA joins the global enforcement trend to advise employers on how to avoid anti-competition behaviour

March 2023

Introduction

Recent initiatives by competition law authorities have increasingly focused on activities with regard to employment practices. The US has led the way in this regard. In July 2021, President Biden published executive order, “Promoting Competition in the American Economy,” which committed the Department of Justice (DOJ) and the Department of Labour to exchanging information to assist with investigations into potential antitrust violations in labour markets.

Against this backdrop, the Competition and Markets Authority (CMA) recently joined the global enforcement trend and published a short guidance for employers on how to avoid anti-competitive collusion in employment setting.

This article discusses the increased competition policy focus on employment practices as well as the content of the CMA’s recent guidance note and what it means for employers.

Growing Scrutiny

Competition authorities across the world have started targeting no-poaching agreements between competitors. In US, the Department of Justice (DOJ) has been quite active in fining companies that are involved in wage fixing and employee allocation with competitors. The DOJ has issued a number of criminal indictments related to “no poach” agreements. In January 2023, the Federal Trade Commission (FTC) proposed a ban on no-poaching agreements and required employers to rescind existing non-compete clauses.

The Canadian Competition Bureau’s recent guidance on wage-fixing and no-poaching agreements which will come into force on June 23, 2023, will make entering into such agreements a criminal offence in Canada. In Europe, Poland and Portugal’s Competition Authority have fined sports organisations for entering into no-poaching agreements in the labour market for basketball and football respectively.

CMA’s Guidance Note

It is against this background that the CMA’s guidance clearly warns that collusion between employers is illegal and could lead to significant financial and personal consequences as well as highlights the negative impact of anti-competitive agreements on labour markets:

• reducing employees’ pay packets;
• reducing employee mobility and choice; and
• limiting a business’s ability to expand.

Anti-Competitive Behaviours

The guidance note focuses on three main anti-competitive behaviours in labour markets which are all examples of business cartels namely:

• No-poaching agreements

These agreements are between business that agree not to approach or hire each other’s employees (or not to do so without the other employer’s consent).

As noted above, these types of agreement have led to enforcement actions in the US. We would suggest that this section of the CMA’s guidelines could have benefited from a more expanded explanation.

For example, if two businesses were to enter into a joint venture or other form of cooperation agreement, they may require the comfort of a commitment from its partner that it would not poach their staff. Doing so could circumvent the entire purpose of the project which may, on the whole, be beneficial for customers. In those circumstances such an agreement may benefit from an individual exemption (although the circumstances would need to be considered on a case-by-case basis). Tying the restriction to a reasonable scope (e.g. staff involved in the collaboration) and duration will increase the chances of the provision being seen as reasonable and enforceable.

• Wage-fixing agreements

Such agreements arise between business that agree to fix employees’ pay or other employee benefits. This includes agreeing the same wage rates or setting maximum caps on pay.

It is easy to see (particularly from an employee’s perspective) that agreements to cap pay at a certain level would be undesirable. That is even more the case at a time when many are experiencing a squeeze from rises in the cost of living. Allegations that pay in certain sectors (e.g. transport and healthcare) has fallen too far behind inflation have led to a series of walkouts and other forms of industrial action in the UK.

Whilst to our knowledge there have previously not been any cases in the UK involving such agreements, the US DOJ issued a criminal indictment in 2022 against businesses which had allegedly entered into such an agreement.

Collective agreements between trade unions and businesses need to be distinguished, however.  In Case C-67/96 Albany, the Court of Justice held that collective agreements are exempt from the application of competition law such an agreement is:

• concluded between management and labour, or their representatives; and
• (ii) aimed at improving working terms and conditions.

Whilst this was a judgment of an EU Court prior to Brexit, it is likely to continue to reflect the position under UK competition law.

• Information sharing

The CMA notes that sharing of sensitive information about terms and conditions that a business offers to employees can in turn reduce competition between those in recruitment and retention.

Information sharing between employers is one of the current problems encountered.  Along with agreements to fix prices or allocate customers or markets, the sharing of commercially sensitive and confidential information between competitors has long been a target for competition law enforcers.

However, sharing of information about confidential terms of employment can be just as harmful as a wage fixing agreement. If for example a company knows what salary or other benefits its rivals are intending to offer in the next quarter or financial year, it will be less open to negotiate better terms with candidates.

The CMA reminds employers that not all illegal agreements or practices are in writing and at times might take form of informal practices also known as gentleman’s agreements as well as it clarifies that information exchange regarding terms of freelancers and contracted workers is equally unlawful.

Repercussions and Recommendations

Failure to comply with the above guidelines could lead to businesses facing a fine of up to 10% of their global, annual group worldwide turnover. Individuals participating in illegal collusion can also face significant personal fines, imprisonment and be disqualified from acting as a director for up to 15 years. In extreme cases, entering into anti-competitive agreements may be a criminal offence under S 188 of the Enterprise Act 2002.

If this were not enough reason to comply, parties injured by anti-competitive practices may also seek damages before the Courts. This has been an increasing trend in competition law in recent years.

To avoid these severe penalties, the CMA has also set out the following recommendations for businesses in its guidance note:

• understand how competition law applies to no-poaching and wage-fixing agreements
• don’t agree with a competitor to fix wages
• don’t agree with a competitor not to approach or hire each other’s employees
• don’t share sensitive information about your business or employees with a competitor
• provide recruitment staff with training on competition law and how it applies in the recruitment context
• ensure solid internal reporting processes are in place, and that staff are aware of these and how they can use them

Competition authorities across the globe are focusing on preventing anti-competitive agreements in the labour markets by restructuring their enforcement policies. The CMA provides a very clear and concise guidelines and employers should, relying on the guidance note, review existing employee or freelancer contracts and make amendments to any dubious clause.

Historically, membership of trade associations has led some businesses into compliance difficulties.  Meetings of members at industry forums can be problematic if businesses use these to share commercially sensitive information (or agree to carry out other potentially problematic practices).

What does it mean for business?

Businesses have been given a clear direction from the CMA’s guidelines. Businesses should consider whether they are engaged in any type of conduct which could attract penalties from competition authorities.  Where there is exposure, businesses may wish to consider a leniency application to competition regulators.

Going forward, businesses should reflect on whether they need to put in place training programs for staff and ensure that there is an internal reporting mechanism in place to ensure management learns in good time of any practices which could be non-compliant. Training can help staff to spot red flags and give them advice on how to avoid the company breaching competition law (for example, by requiring them to leave trade association meetings if discussions turn to anti-competitive matters).

Please do not hesitate to reach out to us if you require advice on any of these issues.

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