Competition | UK Regulatory Outlook February 2023
Published on 28th Feb 2023
CMA guidance on competition law and employment | CMA horizontal agreement guidance consultation | Housebuilding market study
CMA guidance on competition law and employment – when is sharing information on salaries or entering into non-poaching agreements unlawful?
On 9 February 2023, the Competition and Markets Authority (CMA) published a short guide for employers on how to avoid breaking competition law.
While companies often feel that employment terms fall outside competition law, the CMA is keen to emphasise that anti-competitive agreements can negatively impact labour markets, including by reducing employees' pay, reducing employee mobility and limiting businesses' ability to expand (by preventing them from employing staff with the necessary skills and experience). This is especially true in digital markets where there is a "digital skills gap" between the needs of employers and those available in the market.
There are three main types of anti-competitive behaviours in labour markets (which are all examples of business cartels):
- No-poaching agreements: when two or more businesses agree not to approach or hire each other's employees (or not to do so without the other employer's consent).
- Wage-fixing agreements: when two or more businesses agree to fix employees' pay or other employee benefits. This includes agreeing the same wage rates or setting maximum caps on pay.
- Information sharing: when sensitive information about terms and conditions that a business offers to employees, including salaries, are shared between businesses. This in turn reduces competition between those in recruitment and retention.
These agreements or practices can cover all types of employment contract including freelancers and contracted workers as well as permanent salaried staff. Indeed, the CMA is currently carrying out an investigation into the purchase of freelance services in the sports broadcasting sector.
There are substantial fines and criminal liability potentially applicable for breaches of competition law. As a result businesses, legal advisers and recruiters should take steps to understand how competition law applies in the context of employment. This includes how competition law impacts on no-poaching and wage-fixing agreements. Businesses should ensure that recruitment and HR staff are provided with training on competition law and how it applies in the employment context.
CMA horizontal agreement guidance consultation
On 25 January 2023, the CMA published a consultation on its draft proposed guidance for the application of the Horizontal Agreements Block Exemption Orders (HBEOs) for the application of the Horizontal Agreements Block Exemption Orders (HBEOs).
The HBEOs, which are closely based on the updated draft EU HBERs, were introduced in the UK on 1 January 2023. The updated guidance is intended to provide detailed but practical insights on the application of competition law to many common types of horizontal agreement (agreements entered into between actual or potential competitors). By their nature, horizontal agreements have the potential to facilitate a range of horizontal coordination issues between the parties.
In the EU, shortly before the updated HBERs were due to come into force, the European Commission announced it was extending the application of the old HBERs until 30 June 2023. The delay to the introduction of the new regulations and guidance is believed to reflect the considerable push-back the Commission has received from third parties in response to its controversial proposal in the R&D block exemption that undertakings must be able to demonstrate sufficient "competition in innovation". If this requirement is dropped, then this will mark an important point of divergence with the UK's HBEOs.
We have previously discussed the changes to the horizontal regulations themselves in January's Regulatory Outlook.
The CMA and the Commission have published their draft guidance to accompany these regulations. These drafts contain some notable additions to the 2010 Commission guidance as well as containing a few discrepancies between them.
The progress of technology since the 2010 guidance was published and how this may facilitate anti-competitive agreements and specifically information exchange is considered in both. Both sets of guidance discuss "algorithmic collusion" – where companies can use algorithms to facilitate a collusive outcome (especially with regards to information sharing). This can occur even unintentionally. There are number of structural market conditions required for algorithmic collusion – high-frequency of interactions, limited buyers/buyer power and the presence of homogenous products/services.
Similarly, regarding technical progress, both new sets of draft guidance include "mobile infrastructure sharing agreements". These include passive sharing or site sharing agreements, agreements for the sharing of Radio Access Network equipment and spectrum sharing agreements. Both the Commission and the CMA recognise the potential benefits of these agreements such as cost reduction and quality improvements. In addition, both consider that mobile infrastructure sharing agreements would in principle not be restrictive of competition by object, unless they serve as a tool to engage in a cartel. As a result, their effect on the market must be assessed. Both the CMA and Commission give substantial guidance on when mobile infrastructure sharing agreements can have an anti-competitive effect.
Sustainability is another hot topic that is addressed by both sets of guidance. Although the CMA's sustainability guidance has yet to be published, the Commission has included a dedicated chapter on sustainability agreements entered into between competitors within its draft guidance. It will be interesting to see how these compare when the CMA publishes its guidance on agreements which pursue sustainability objectives.
Housebuilding market study
On 20 January 2023 Sarah Cardell, chief executive of the CMA, wrote to Michael Gove, the secretary of state for the Department for Levelling Up, Housing and Communities, stating the CMA's intention to carry out a market study into the homebuilding sector.
This comes off the back of significant consumer work in relation to leasehold homes where the CMA has focused on ground rent clauses. The CMA expects that promoting competitive markets and tackling unfair practices across the accommodation sector more broadly will be a continued area of focus over the next 12 months.
To this end, the CMA board has decided in principle that homebuilding should be prioritised as the next market study launched by the CMA.
The CMA is currently finalising the scope of this project, including deciding on the most appropriate geographic scope. It is expected that this will be put to the board for final decision to launch a market study shortly.
A market study aims to establish if the sector is operating in the interests of consumers, and whether competition is working well: promoting good consumer outcomes. It presents an opportunity to influence the CMA's thinking – this is a key opportunity. Also, a failure to comply with any request for evidence or production of documents can result in significant fines being imposed.
Following a market study, the CMA has the power to require certain market players to change their conduct and may make a more formal market investigation reference. This is likely to result in more detailed requests for information, site visits and hearings involving parties active in the specific market being considered or adjacent ones.