Competition law & labour markets: the CMA springs into action

Competition law and labour markets

Competition law in labour markets is a hot topic for many competition bodies around the world and, in particular, the United Kingdom’s Competition and Markets Authority. The CMA has lately sprung into action, in order to research, investigate and, ultimately, decide, whether the majority of UK’s labour markets lack competition due to no-poach agreements, salary-fixing agreements and other anticompetitive tactics used by UK employers. In this era of thrift and savings, generated by the recession caused by the management of the Covid 19 pandemic, and then the inflation ballooning in the aftermath of the Russia/Ukraine war, the CMA is particularly attentive that UK citizens get their fair share of remuneration, when they go to work every morning, to pay their bills. Let’s investigate how the Competition and Markets Authority is positioning itself as a model competition body, in the fight against anticompetitive behaviour in labour markets.

1. What is the CMA doing in relation to competition law & labour markets?

Competition issues in labour markets generally fall under the prohibition on anticompetitive agreements, pursuant to Chapter I of the Competition Act 1998 (‟CA98”) in the UK, and article 101 of the Treaty of the Functioning of the European Union (‟EU”).

The Competition and Markets Authority (‟CMA”) launched three investigations in labour markets in the United Kingdom (‟UK”), since July 2022, as follows.

The first investigation, started in July 2022, relates to suspected breaches of competition law in relation to the purchase of freelance services supporting the production and broadcasting of sports content in the UK. The CMA launched an investigation under section 25 (Power of CMA to investigate) CA98 into suspected infringements of the Chapter I (Agreements) prohibition of the CA98 by undertakings involved in the production and broadcasting of sports content. The CMA is investigating suspected breaches of competition law by at least the following:

This investigation was updated on 3 April 2024, with an ongoing assessment of information gathered in respect of the purchase of freelance services supporting the production and broadcasting of sports content in the UK, between March and May 2024.

The second investigation, launched in October 2023, relates to suspected anti-competitive behaviour relating to freelance and employed labour in the production, creation and/or broadcasting of television content, excluding sport content. The CMA launched this second investigation under section 25 CA98 into a suspected infringement or infringements of the Chapter I prohibition of the CA98 by a number of undertakings involved in the production, creation and/or broadcasting of television content. More specifically, the investigation concerns the activities of these undertakings in relation to the purchase of services from freelance providers, and the employment of staff, who support the production, creation and/or broadcasting of television content in the UK, excluding sport content. The following undertakings are investigated, as the investigation is digging into whether production companies have been colluding by informally fixing freelancers’ wage rates:

  • British Broadcasting Corporation;
  • ITV PLC;

Further investigatory steps and assessment of evidence is done by the CMA, between April and October 2024.

The third and last investigation, launched in March 2023, relates to suspected anticompetitive conduct in relation to fragrances and fragrance ingredients. The CMA launched an investigation under Chapter I CA98 into suspected breaches of competition law. The investigation concerns suspected anticompetitive conduct in relation to the supply of fragrances and fragrance ingredients for use in the manufacture of consumer products such as household and personal care products. In January 2024, the CMA extended the investigation to include suspected unlawful coordination by several undertakings, involving reciprocal arrangements relating to the hiring or recruitment of certain staff involved in the supply of fragrances and/or fragrance ingredients. The businesses under investigation by the CMA are:

as well as other entities within their corporate groups, including UK subsidiaries.

Also, in its annual plan for 2023/2024, the CMA referred to its current focus on competition issues in labour markets in the following terms, referring to it as a priority in relation to its strategic aim of ensuring that people can be confident they are getting great choices and fair deals: ‟More broadly on labour markets, we have produced guidance for employers on how to avoid anticompetitive behaviour such as no-poaching agreements, when 2 or more businesses agree not to approach or hire each other’s employees. Our Microeconomics unit’s research strategy includes work on labour market power – that is the extent to which employers are able to keep wages or working conditions below competitive levels”. This CMA annual plan highlights that with the cost-of-living crisis and at a time when finances are under particular pressure, the CMA wants to clamp down on cartel behaviour and unilateral effects impacting household income and labour markets, and therefore is actively pursuing collusive behaviour that affects finances and household incomes.

Indeed, in February 2023, the CMA issued guidance to support employers to identify and avoid collusion through wage-fixing, no-poaching agreements and information sharing. In this guidance, the CMA highlighted three areas of particular risk in labour markets:

  • no-poach agreements: agreement where two or more businesses agree not to approach or hire each other’s employees (or not to do so without the current employer’s consent);
  • wage fixing agreements: agreements between two or more businesses to fix employees’ salaries or other employment benefits. The CMA noted that this could include agreeing to pay the same wages or setting maximum caps for pay. Wage fixing agreements were given as an example of buyer cartels in the UK horizontal guidelines published by the CMA in August 2023; and
  • information sharing: businesses sharing sensitive information about terms and conditions of employment. The CMA highlighted that this could cover freelancers and contracted workers, as well as permanent employees.

Then, in January 2024, the CMA published a 192 pages’ long research report by their new Microeconomics Unit (part of the CMA which conducts research to inform the CMA of emerging economic issues) on ‟Competition and market power in UK labour markets” (the ‟Report”), focusing on employer market power and market concentration. The Report is intended to provide an evidential basis to support policymaking in relation to labour markets in the UK, as well as further research into competition and labour markets.

2. Why is the CMA concerned about competition law & labour markets?

2.1. Key takeways from the CMA’s Report

Some of the key findings, in the Report, are:

  • market concentration varies significantly across labour markets: overall, the level of employer market power (i.e. the ability of firms to pay workers less than the value of their contribution to the firm’s output) in the UK has, since 1998, been relatively stable or declining. Also, labour market concentration (i.e. how many firms there are in a particular market) in the UK is roughly the same as 20 years ago, despite significant changes to the structure of the labour market, including the rise of the gig economy and the impact of the Covid-19 pandemic. However, there is substantial industry variation in market concentration across labour markets, which can impact wage levels. Geographically, labour markets are much more concentrated outside London and the South East.
  • the law of non-compete clauses may need updating: non-compete provisions, which restrict the ability of employees to work for rival firms for a period of time after leaving their current employer, do not generally breach UK competition law. However, the Report finds that around 26 percent of UK workers are affected by non-compete clauses which prevent them from joining a competitor, even in low-paid jobs. Given the prevalence of non-compete clauses across the economy and their impact on worker mobility, the CMA considers that UK employment law may need updating. This supports the UK government’s intention, announced in May 2023 (as part of a package of measures to boost the productivity of UK businesses), to legislate to limit post-term non-compete clauses in employment agreements to 3 months.

Sarah Cardell, CEO of the CMA, has stated that the CMA will use the findings of the Report to inform the CMA’s work in combatting anti-competitive conduct in labour markets, including its existing above-mentioned three investigations. This Report’s findings will be used to inform broader policy developments, such as the increase in the number of self-employed people in the gig economy, for example.

2.2. Global interest in relation to competition law & labour markets

The CMA is not alone in focusing on labour market competition law violations. There is a global trend of competition authorities worldwide showing an increasing interest in potential anticompetitive conduct in labour markets in recent years.

The US Department of Justice (‟DOJ”) and the Federal Trade Commission (‟FTC”) were the first to take a stance on competition issues in labour markets when they published guidance in October 2016. The DOJ and FTC have been particularly interested in no poach agreements and announced the first criminal charges for a no-poach agreement in 2021. There have also been several civil class actions brought by employees against employers: for example, a claim was brought by nurses which resulted in the award of treble damages for wage fixing and settled actions for a large payout (against Disney by animators). In January 2023, the FTC announced a proposed rule that would ban nearly all post-employment non-compete agreements, with limited exceptions.

Similarly, Canada has implemented a no-poach ban.

In a 2021 speech, Competition Commissioner Margrethe Vestager indicated that the European Commission (the ‟Commission”) was interested in non-classic cartels, i.e. anticompetitive conduct in labour markets – including no-poach and wage-fixing agreements – as an area of enforcement activity. She also highlighted wage fixing agreements as an example of a buyer cartel with a ‟very direct effect on individuals”. At an EU-wide level, the Commission announced, and conducted, in November 2023, its first ever dawn raids carried out in relation to a suspected no-poach agreement (and associated anticompetitive exchange of information) in the online food delivery sector.

There have been numerous investigations into alleged competition law infringements in labour markets in recent years with cases in Belgium, Denmark, Finland, France, Hungary, Lithuania, Portugal, Romania and Spain in the EU, as well as Brazil, Colombia, Switzerland, Turkey and the USA. These investigations span a wide range of sectors, including banking, healthcare, sport and software.

For example, in France, in 2017, the French Competition Authority sanctioned the competitors in the floor-covering sector for having adopted a ‟tacit non-aggression agreement” or a ‟gentleman’s agreement”. This agreement prohibited the companies from actively soliciting each other’s employees for a number of years. The companies had also exchanged information on salaries (including planned increases) and bonuses awarded to employees. In January 2023, the French Directorate-General for Competition, Consumer Affairs and Fraud Control (the ‟DGCCRF”, responsible for local anti-competitive practices) fined metal recycling companies for having concluded a no-poach agreement covering the whole French territory as part of a divestment deal. The DGCCRF considered that this agreement went beyond what was necessary for the completion of the merger due to the national scope of the undertaking (which covered a larger territory than the one in which the seller offered its services prior to the divestment) and its reciprocity.

3. What are the next steps, for the CMA, with respect to competition law & labour markets?

In her speech on 25 January 2024, CMA’s CEO, Sarah Cardell reiterated the CMA’s current interest in potential competition issues in labour markets but stressed that the competition rules do not generally regulate contracts between an employer and an employee. She added that the CMA, in line with international competition authorities, does not intend to scrutinise genuine collective bargaining between self-employed workers and employers.

However, it is anticipated that during the course of 2024, in addition to the above-mentioned potential UK legislative reform to restrict the duration of non-compete clauses to three months, there will be an increase in competition enforcement in labour markets, particularly in respect to no-poach and wage-fixing agreements both in the UK and globally. Similarly, as a result of the increased scrutiny of labour markets, there could be a rise in private claims, especially concerning equal pay.

The CMA is particularly interested in clamping down on what may otherwise be seen as standard business practice.

It is therefore critical for all businesses, irrespective of the industry they compete in, to ensure Human Resources (‟HR”) and recruitment departments are fully familiar with competition law compliance and training programmes, and that care is taken to avoid potentially infringing conduct in this context. Members of those teams need to be aware of potential areas of concern when speaking to their peers in other businesses, to mitigate competition risks.

Employers and HR professionals across all sectors/industries should therefore take this opportunity to review their use of non-compete provisions and, of course, ensure that they are observing the CMA’s guidance on wage-fixing, no-poaching agreements and information sharing. Are there any agreements with competitors (commercially or in recruitment) where it is explicitly set out that they will not approach each other’s employees? Has the company agreed with its competitors that they will not pay above a certain amount or the terms on which it will employ staff? Does the company routinely contact competitors to benchmark themselves? If so, advice should be sought on how to proceed to minimise the risk of a CMA investigation.

Crefovi’s live webinar: Competition law & labour markets – the CMA springs into action – 12 April 2024

 

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