Competition Law Update

Recently the Competition and Markets Authority (CMA) imposed penalties totalling over £4 million on a group of sports broadcasters for collaborating to fix the remuneration and hiring policy of freelance suppliers (e.g. of studio, design, production etc of content). This was done to limit the broadcaster’s cost and maximise their availability through wage fixing and anti-poaching agreements. 

The penalties were imposed for breach of the restrictive practices prohibition under Chapter I of the Competition Act 1998. Any agreements reached between the broadcasters (some of the arrangements were informal – so called ‘gentleman’s agreements’) were void and they are now left open to claims for damages from the freelancers.
The importance of the case and what employers and HR professionals need to know about illegal labour market cartels is explored below.

What is Cartel Law?

When competitors collaborate, for instance on technological development, this may give rise to a formal or informal arrangement which can be construed as a restrictive practice. Restrictive practices which have an “effect” on competition (for instance reduction of supply to the market) may need to be managed under Chapter I. If the parties involved have a combined market share below a certain threshold, they may be deemed not to have a limiting effect on competition. 

There are certain restrictive practices which are regarded as egregious, and these are referred to colloquially as cartel activity. Cartel activity is generally forbidden regardless of the market shares of the parties involved. This is because they are regarded as restrictions by “object” and are generally very difficult to justify.

For instance, a seller’s cartel could involve two or more competing businesses price fixing products and services, splitting of markets between them (so that they don’t have to compete), collusion in tenders or the sharing of current or projected price sensitive information.

More importantly for employers and HR professionals, a buyer’s cartel involves purchase price fixing of e.g. raw materials from suppliers, wage fixing, non-poach agreements or sharing of sensitive staffing information. It is important to note that “competing business” here involves those competing for the same staff, as opposed to those competing for product sales or market shares (as with seller’s cartels). 

Hence the Cartel law can prohibit outright a wage fixing or anti-poaching clause between two businesses involved in completely different product markets, as they may still share the need for a particular employee (e.g. for internal IT services).

Cartel law and employment law

Cartel law does not apply to employment law between an employer and its employee, or a hirer’s ability to engage with freelance workers (as in the broadcasting case above).

So non-solicitation clauses in employment contracts for instance are governed by restrictions under employment law rather than Cartel law.

However, employment contracts and internal employment and remuneration policies can provide evidence of illegal cartel activity, for example:

• A non-solicitation clause can indicate the presence of a non-poach agreement between the employer and other businesses

• An employer’s internal employment and remuneration policy may set minimum/maximum wages or otherwise indicate allegiance to a competitor’s hiring and pay/benefits policy

• An employer conducts a price benchmarking exercise, particularly if not sub-contracted out through a third party, where sensitive current or prospective staff information is shared

Where it suspects illegal cartel activity, the CMA has extensive powers to investigate and increasing uses “dawn raids” (unannounced inspections under warrant) on both business and domestic premises to gather formal and informal evidence (e.g. WhatsApp messages).   

Additionally, wage fixing and anti-poaching are both areas being investigated by a number of international jurisdictions like the EU, individual EU Member States and the USA. In the last case, there is a move afoot to criminalise such activity. It follows that if a UK employer is seeking to collaborate with an overseas partner, one of these regimes may also be applicable.

What can we do to assist employers?

The CMA has urged employers to take advice in following competition law when it comes to considering wage fixing or non-poach practices and agreements. This is because it is seeking a clampdown on such activity through increased investigative resource at its disposal. This resource is linked to AI, which can detect patterns in pricing across a market which a human may not be able, or have the resource to be able, to detect.

Based on recommendations by the CMA, our competition law specialist lawyers can assist in the process by offering employers:

• Training on restrictive agreements

• Performing risk assessments on existing arrangements

• Advice on preparing and dealing with dawn raids and related investigations

• Drafting of legal agreements between two businesses engaged in collaborations

• Including Cartel law analysis in due diligence processes where applicable

• Keeping employers up to date on important developments in the area

To discuss how we can help you avoid illegal labour market cartel activity, please contact the author.