Anyone involved in recruiting and retaining talent needs to be aware of the competition law risks involved. These include fines of up to 10% of total group turnover, director disqualifications and actions for damages, the potential for individual criminal prosecutions and exclusion from public tenders, as well as the reputational consequences of a competition law infringement finding.
The Competition and Markets Authority’s (“CMA”) recent guidance “Competing for Talent” reinforces its decision relating to the employment of freelance labour in the production and broadcasting of sport content, which should also be seen in the context of a range of decisions in other jurisdictions, including the US and Europe, emphasising the applicability of competition law to various aspects of employment practices. In addition, the CMA is currently investigating potentially anti-competitive reciprocal arrangements relating to the hiring or recruitment of staff involved in the supply of fragrances and fragrance ingredients.
This note sets out:
The Chapter I prohibition contained in s.2 of the Competition Act 1998 prohibits agreements that prevent, restrict or distort competition.
In this context, “agreements” can include any interaction where competitively sensitive information is exchanged between competitors that reduces competitive uncertainty. Even unilaterally provided information during one-off meetings, or provided in unsolicited emails or informal texts can amount to a serious competition law infringement.
Also, the CMA is clear that in the employment context, “competitors” covers not just those competing to sell substitutable products, but also those competing to recruit staff with any particular skill, so the definition is potentially very wide.
As the CMA guidance makes clear: “Competition law applies when businesses agree or coordinate on things like salaries or benefits packages“.
Accordingly, any wage caps or standardised pay rates (or increases) agreed between competitors are likely to be caught by the prohibition.
Similarly, ‘no poach’ agreements by which competitors agree not to recruit each other’s employees, or not to do so without the other’s consent, are also likely to be caught. Note that the European Commission recently imposed fines of €329m in relation to no poach agreements in the online food delivery sector.
The guidance also covers collective negotiations between employers’ and workers’ respective organisations. Generally speaking, the guidance suggests that such collective negotiations are unlikely to raise competition law issues.
While benchmarking can be a helpful tool to make informed decisions and improve efficiency, the most valuable and interesting information may be considered ‘competitively sensitive’ information.
Normally, the exchange of public, aggregated and historic information is less likely to be problematic than the exchange of confidential, specific, current or future information. However, care needs to be taken where even historic, aggregated information might be a predictor of future behaviours.
Specific examples of information that is likely to be problematic include:
As indicated above, generally aggregated and anonymised or publicly available information is less likely to be problematic. However, publicly revealed information could potentially involve anti-competitive signalling to competitors, so this needs to be considered as well. The European Commission is currently investigating whether specific public statements may amount to an infringement in relation to the market for tyres.
Given that even the unilateral disclosure of information can generate serious competition law risks, as it will be presumed by the CMA that such information has been taken into account and impacted future behaviour, companies need to tread cautiously in these circumstances.
The first step will be to take legal advice to determine the level of risk and the appropriate response. This may include:
Recruitment activities are becoming a ‘hot topic’ for competition authorities around the world, with competition enforcers seemingly looking for opportunities to exercise their powers in relation to employers’ practices. Therefore, HR departments and others with responsibility for recruitment need to be aware of the risks to they can manage them effectively and avoid the potential pitfalls and the serious negative consequences that can follow.
If you would like to discuss any of the issues raised in this article, please contact Noel Beale (noel.beale@michelmores.com) or your usual Michelmores contact.
