Competition risks for employers

CMA steps up enforcement activity

On 11 October 2023, the UK’s Competition and Markets Regulator (the CMA) opened its second investigation into alleged anti-competitive practices between employers.

The investigations are part of a wider trend that has increasingly seen global competition regulators cracking down on wage fixing and other competition issues in labour markets.

The most recent investigation will examine the treatment of freelancers and employees in the broadcasting industry. A number of production companies are under investigation, including Hat Trick Productions, ITV and Red Planet Pictures. It builds on the first investigation into labour markets, opened in July 2022, which is focussing exclusively on the sports broadcasting industry.

These investigations serve an important reminder to HR professionals that, against the backdrop of spiralling living costs, the CMA sees this as an enforcement priority. In February 2023, the CMA published guidance for employers on how to avoid anti-competitive behaviour affecting all workers, including freelancers, contractors and permanent salaried staff.

In this regard, it is important to note that the principles are not limited to direct employees; they also apply to collusion between (potentially) competing employers in the gig economy that affects casual workers and contractors. Aside from potential impacts on workers themselves, pay, and the attraction and retention of staff, is often an important (even if indirect) input into a company’s customer proposition. It therefore makes sense that the CMA has taken a renewed interest in arrangements that might distort the free-flow of talent in the UK.

What are the key competition risks for employers?

The CMA guidance focusses on three types of anti-competitive behaviour, which are detailed in the drop-down menus below.

It is important to remember that, for competition law purposes, the concept of an ‘agreement’ is broad and captures informal agreements such as oral discussions or a gentleman’s agreement, as well as legally binding contracts.

Wage-fixing agreements

These are agreements between two or more businesses to fix employees’ pay or other employee benefits. They include agreeing the same wage rates or setting maximum caps on pay.

Whilst the CMA’s guidance on this point is limited, its view is that market forces should determine pay rates, and any attempts by groups of employers to distort this is likely to cause suspicion. The CMA’s August 2023 guidance on horizontal agreements lists wage-fixing as a type of agreement that restricts competition by object; the most pernicious type of anti-competitive agreement.

This is the kind of alleged agreement that the CMA is currently investigating. In the sports broadcasting investigation, the CMA alleges that several large sports broadcasters collectively agreed to pay a fixed amount to freelance cameramen, which it believes restricted the ability of those freelance workers to compete for higher pay.

No-poaching agreements

These are agreements between two or more businesses not to approach or hire each other’s employees (or not to do so without the other employer’s consent). From a competition perspective, the theory of harm is that no-poaching agreements reduce competition and mobility in the labour market, which can lead to lower pay and poorer working conditions.

Although there has not been any specific or public enforcement by the CMA in this area to date, in the US, the first no-poach lawsuit dates back to 2010, when the Department of Justice Antitrust Division filed a complaint against six tech companies based in Silicon Valley. The companies had entered into bilateral agreements not to recruit each other’s employees by approaching them either in person, by phone, letter, or email. The Department of Justice subsequently launched further investigations into no-poaching agreements between companies in other sectors.

Whilst it remains to be seen whether the CMA will turn its attention to no-poaching agreements, its latest guidance suggests it may take a similarly hard-line approach to that adopted by the US Department of Justice.

Information sharing

There are a number of legitimate reasons why HR professionals may wish to benchmark against the market and discuss employment issues with peers who operate in the same sector. For example, to get a better understanding of industry best practice in relation to regulatory change, employee wellbeing, workplace benefits and ways of working.

Nevertheless, the sharing of commercially sensitive information between actual or potential competitors may breach UK competition law and can in some cases lead to more serious cartels. HR professionals should be aware of these risks if and when contemplating discussing salaries or other commercially sensitive employment terms with other businesses. In any event, HR departments should seek competition advice, particularly if they consider that any of their practices risk crossing the line.

The CMA has also previously highlighted the risks associated with staff moving between rival companies, which has the potential to serve as a conduit for businesses to exchange commercially sensitive information. For example, in its 2020 investigation into cartels in the construction sector, some of the infringing conduct was linked to an individual moving jobs between two firms that were bidding on the same tender opportunity. Before moving firms, this individual shared commercially sensitive pricing information regarding the live tender opportunity with their future employer by text message. This formed part of a wider information sharing agreement between the companies involved, which led to the CMA imposing combined penalties of over £15 million.

Whilst the CMA guidance refers to all of the above headings as ‘business cartels’, the categories are non-exhaustive. The CMA’s interpretation of anti-competitive practices is wide and may include those that do not fall neatly into a single category.

Notably, although the guidance focusses on agreements and information sharing between competitors, the CMA is silent as to whether this means competitors in the wider labour market generally or firms that are competing in the same marketplace in terms of their products and services. By contrast, the US’s equivalent 2016 guidance, which adopts a wider interpretation than one might expect in the UK and Europe, makes it clear that ‘competitors’ include “firms that compete to hire or retain employees [...] regardless of whether the firms make the same products or compete to provide the same services.”

What are the consequences of breaching competition law?

Aside from the trauma of a lengthy competition investigation, the CMA has the power to fine businesses up to 10% of their annual worldwide turnover. Individuals can face personal fines, director disqualification orders of up to fifteen years and, potentially, criminal liability.

It is also important to note that the financial penalties that the CMA can impose will often pale in comparison to the potential for a class action claim that can be brought, whether on a standalone or a follow-on basis, after the CMA has established anti-competitive behaviour through an infringement decision.

What do employers need to do to comply?

While the application of competition rules is complex and will depend on the factual circumstances, as a starting point the CMA has advised that employers follow the guidance below:

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.

What about non-compete clauses in employment contracts?

As a general rule, employment contracts entered into by companies and their employees are outside the scope of competition rules.

However, non-compete clauses in employment contracts are also coming under increasing scrutiny. In May 2023, the Department of Business & Trade published its response to the government consultation on measures to reform post-termination non-compete clauses in contracts of employment. This has proposed a cap on the length of non-compete clauses in employment contracts to three months.

If you would like to discuss any of the issues above, or if you would like advice on your recruitment process and workplace policies, please get in touch with one of our experts.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at October 2023. Specific advice should be sought for specific cases. For more information see our terms & conditions.

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