On 9 February 2023, the UK Competition and Markets Authority (CMA) published new guidance reminding employers that they must comply with competition law when setting wages, working conditions for new and existing employees, and policies on staff recruitment and retention.
Traditionally, competition authorities across the globe, including the UK’s CMA, have focused on agreements affecting the price, quality and availability of products and services. However, the CMA has increasingly been taking note that companies also compete in the same talent pool while hiring. In the eyes of the CMA this makes them competitors in the labour market. This is particularly pertinent given the current war for talent in many sectors.
If businesses are not compliant with competition law in employment it is not only harmful to competition in the labour market, it can also reduce uncertainty about a key cost for competing companies, thereby restricting competition or creating a barrier to expansion or new market entry.
This focus is not unique to the UK’s CMA. Regulators in Europe, North America and Asia are also opening investigations into anti-competitive conduct in labour markets.
The new CMA guidance serves as a warning for businesses to ensure their HR policies and practices, as well as contractual provisions, comply with competition law. The penalties for breaching competition law can be severe and include significant financial penalties as well as criminal prosecution.
What are the key competition law concerns?
In labour markets, the three main areas of concern are:
- No-poaching agreements: 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.
- Wage-fixing agreements: agreements between two or more businesses to fix employees’ pay or other employee benefits, such as wages, bonuses and working conditions. For example, agreements to pay the same wage rates or set maximum caps on pay.
- Information sharing: employers must not share confidential information about the terms and conditions their business offers to its employees. This includes information that is not publicly available relating to wages, bonuses and other working conditions.
What does this mean for HR in practice?
HR professionals would be forgiven for thinking that terms like ‘no-poaching agreements’, ‘wage fixing’ and ‘cartels’ can’t possibly apply to them. However, in attempts to drive best practice for employer and employee, HR professionals may discuss and share recruitment experiences and challenges, the current talent pipeline and the general salary and benefits packages for candidates.
We see this very frequently in the form of HR forums focused on a particular sector or location. These gatherings are an ideal opportunity for HR professionals of any level to discuss the recruitment climate and issues affecting them. This can, in some cases, lead to a discussion about current rates of wages and strategy for wage negotiations.
This type of information is commercially sensitive and, if shared between competitors, can result in collusion. For example, in July, the Belgian Competition Authority opened an investigation into no-poach agreements and other anti-competitive conduct between three security companies, which allegedly happened at a trade association. The CMA is also investigating alleged wage fixing by broadcasters for certain technical freelancers and employees.
Information sharing doesn’t need to be documented, or formal, to present a risk. It’s not even necessary that such issues form a part of a formal agenda item. Often these discussions take place informally over lunch, or as part of informal communications between friends in different companies, but case law shows us that this can be a problem in itself. For example, two banks were fined nearly £30m after employees shared confidential information about the banks’ loan facilities during social, client and industry events (including a bowling event and a pub visit).
HR professionals should be aware that, once confidential information is received, a company will be deemed to have acted on the information, even if in reality they have done nothing with it. The only way to avoid this is a ‘noisy exit’ by expressly rejecting the information, leaving the meeting or closing down the conversation and making sure this is recorded. In formal settings this should be in the minutes, while in informal meetings this should be recorded in contemporaneous notes, and good practice would include informing your compliance or legal team.
Taking part in benchmarks and surveys, eg on salaries, can also be a problem where the data shared reveals confidential information about competitors.
What are the consequences of breaching competition law?
Financial penalties for breaching competition law can be high (up to 10 per cent of a business’s group worldwide turnover) and there are also individual penalties, such as director disqualification orders and even criminal prosecution.
What should employers do?
As businesses face ongoing inflationary and staffing pressures the risk of collusion in relation to practices concerning recruitment and retention may be heightened. Coupled with the CMA’s renewed focus on employment practices, this should encourage organisations to audit and review their processes to ensure that they comply with competition law. This includes making HR colleagues and business leaders aware of what information and practices they can and cannot share, or agree, with their counterparts in other businesses, even informally, as the penalties for non-compliance can be severe.
Suzanne Caveney is legal director, Julia Woodward-Carlton is a partner and Emily Beighton an associate at Eversheds Sutherland