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The UK competition law authority is increasingly focused on 'anti-competitive' employment market practices. The CMA's recent guidance gives some comfort by clarifying what's acceptable.
The Competition and Markets Authority (CMA) has just published its most detailed guidance to date regarding how it considers UK competition law to apply to employment market practices. Although still relatively high-level, the guidance will help businesses stay on the right side of the law when seeking to protect their business interests in the UK.
This guidance casts additional light on the matters we addressed in our recent articles on:
- Recent CMA action against "anti-competitive practices" in UK employment markets
- The European Commission fining delivery businesses £277m for anticompetitive non-poaching agreements
Anti-competitive practices
The "Competing for talent" guidance note focuses on the following potentially anti-competitive practices in employment markets:
- Agreements between businesses not to poach staff;
- Agreements between businesses to fix the wages of their staff;
- Agreements between businesses to exchange competitively sensitive information.
The CMA states that it is particularly concerned to tackle practices that constitute "collusion" rather than fair competition and which have the effect of:
- Reducing employees' pay packets;
- Reducing employee mobility and choice;
- Limiting the ability of businesses to expand.
Agreements to fix wages or exchange confidential information are not especially common in the UK and many businesses appreciate their potential illegality. There are, however, risks around pay benchmarking if not handled carefully. Unless they are already in the public domain, pay details are likely to be competitively sensitive. The marked increase in regulation requiring greater transparency – including the EU's Pay Transparency Directive - may result in pay details becoming more public and therefore less commercially sensitive over time. For the time being, however, pay generally remains a competitively sensitive area.
As the CMA points out, even a unilateral disclosure of competitively sensitive information can raise competition law concerns Companies should be alive to the risks of sharing information about freelance resource (leading to any kind of informally agreed rates) as well as the risks of sharing information about employees.
As our previous commentary highlighted, non-poaching agreements between companies are not unheard of and employers may not appreciate that they can breach competition laws. Non-poaching arrangements entered into in connection with all of the following business-to-business agreements require some caution:
- a joint venture or other commercial collaboration;
- the sale of a business;
- the settlement of commercial disputes/litigation (e.g. following 'team move' litigation or litigation to enforce a 'non-compete' provision against an employee and/or their new employer);
- any form of labour supply or talent acquisition service; and
- supplier agreements or service contracts.
Staying on the right side
The CMA's guidance note provides some helpful clarity regarding the types of agreements that might attract their attention as potentially anti-competitive. It explains that agreements not to hire another business's employees, not to approach them about job opportunities or not to approach or hire them without the consent of the other business could all be anti-competitive. Such arrangements can breach competition law even where they do not apply to all parties (i.e. where they are not "mutual").
Helpfully the CMA notes that time-limited non-poaching or non-solicitation arrangements (i.e. agreements not to approach a business's customers) attached to secondment or consultancy agreements or attached to agreements between "service providers and their customers" are unlikely to breach competition law "if they are necessary to enable the agreement to be carried out and are proportionate to the overall objectives of the agreement, and provided that the clause's duration, subject matter and geographical scope do not go beyond what is reasonably required". This is similar to a key part of the legal test used to determine whether post-termination restrictions (like non-compete or non-poaching terms) in employment contracts are legally enforceable.
The CMA note also provides quite detailed guidance on where information sharing (including in collective bargaining scenarios) might breach competition law, along with some guidance regarding wage fixing. The key points to note here are that businesses may be competing for workers, even if they are in different sectors (so not competing for clients) and that sharing information about pay is problematic when it reduces uncertainty as to the operation of the market in question, or could influence the competitive strategy of other businesses.
Benchmarking using a third party that ensures information is anonymised and sufficiently aggregated is, however, less likely to be problematic.
Employer best practice
Businesses can minimise the risk of breaching UK competition law through a number of sensible actions:
- Providing training to recruitment staff and internal legal teams on how competition law applies to labour market practices/arrangements;
- Ensuring appropriate reporting processes are implemented (e.g. so legal teams are promptly notified of potentially anti-competitive practices);
- Identifying and reviewing high risk arrangements (e.g. non-poaching or information sharing) in light of the additional guidance now received from the CMA;
- Basing any non-poaching agreements on legitimate business needs and limiting their scope (including, importantly, by limiting their duration).
Where you identify activities that may be regarded as 'anti-competitive', legal advice can be sought to confirm the risk and to identify mitigation strategies.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.