Tracking the activities of the Competition and Markets Authority (CMA), the UK’s competition law watchdog, may not, to date, have featured high on the ‘to do’ list for most HR professionals. However with the launch, last month, of a second investigation into potentially anti-competitive behaviours between employers, it is clear that the CMA is following through on its announcement, earlier this year in its annual plan, that identifying potential competition issues in UK labour markets was one of its ‘areas of focus’ for 2023-24. And if clamping down on non-compliant employment practices is firmly on the CMA’s radar, this means, as an HR professional, it needs to be on yours too. 

Understanding the CMA’s role

The UK’s competition laws are designed to encourage competition in markets, to protect consumers from businesses colluding to fix prices or carve up markets and from other forms of anti-competitive arrangements, and to prohibit businesses abusing dominant market positions. The CMA is the primary enforcer of competition law in the UK and is charged with investigating suspected breaches of competition law. 

Where it finds breaches of competition law, the CMA has significant enforcement powers. It can issue fines of up to 10% of group worldwide annual turnover, declare anti-competitive agreements unenforceable, disqualify directors and impose criminal sanctions. There are also significant reputational risks associated with a CMA investigation (which can also be lengthy and expensive). 

How is this relevant for HR? 

Employers have always been required to comply with competition law when setting wages and working conditions for their employees, so these obligations aren’t new. Indeed, at a Law Society roundtable held earlier this month, the CMA confirmed that it has had an interest in labour markets for some time.  However, the CMA has now stepped up its scrutiny of employment practices.

Showing it means business, in the last 18 months,the CMA has launched two investigations into potentially anti-competitive labour market practices – the first of their kind. These investigations focus on the potentially anti-competitive hiring practices of organisations in the television production and broadcasting sector. In both investigations, the CMA has said that it has ‘reasonable grounds’ to suspect that there has been a breach of competition law. However, it has not yet decided whether there is sufficient evidence to take any enforcement action. 

This all begs the question - what constitutes anti-competitive employment practices? The CMA has confirmed that the following behaviours within labour markets may potentially be considered anti-competitive and therefore outlawed:  

1. Non-poaching agreements – where 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. 
2. Wage-fixing agreements – agreements between two or more businesses to set the pay or benefits of their employees at an agreed level. This can include agreeing to the same wage rates or setting maximum caps on pay. 
3. Information sharing – where different employers share confidential and non-public sensitive information about the terms and conditions (including pay) that they offer to their respective employees. The CMA explains that this can reduce competition in the recruitment and retention of staff. Employers do not necessarily have to be operating in the same sector for information sharing to amount to a breach. This is because two businesses operating across different sectors may still be competing with each other to hire the best talent. 

It’s worth noting that agreements and practices do not have to be formalised or in writing to be against the law. Importantly unlawful behaviour can also include informal conversations or communications between employers and/ or unwritten ‘gentlemen’s agreements’. Unlawful practices may also relate to freelance workers as well as to employed staff. 

Whilst attending and speaking with colleagues at events is commonplace and generally beneficial, HR professionals should also be particularly wary of holding informal chats with other organisations about employment terms, as conversations at industry and social events can also be a breach of competition law. This could include informal conversations about future wage intentions, upcoming hiring decisions and ongoing trade union negotiations, which may all be infringements of competition law.

How should HR professionals and employers respond? 

To help employers and HR professionals understand the parameters within which they must operate, the CMA has issued guidance for organisations on how to navigate this area of law. Earlier this year, it published guidance for employers on avoiding anti-competitive behaviour, in which it advised businesses to take the time to understand what constitutes non-poaching or wage-fixing agreements. The CMA has also launched a ‘cheating or competing campaign’ to help businesses spot, avoid and report cartels in employment, which includes a series of explanatory videos. 

Given the CMA’s newfound focus on employment practices, HR professionals, as well as in-house lawyers, should be alert to these risks and should familiarise themselves with their organisation’s competition law compliance policies which the CMA expects all organisations to have.

The CMA has suggested that businesses should provide resourcing and recruitment teams with training on competition law and how it applies in a recruitment context. They also recommend implementing internal reporting processes and making staff aware of how these are intended to operate. HR teams should also be encouraged to flag any concerns internally to their in-house legal contacts and/ or to take legal advice where necessary.

This is not an issue which is going to go away. The CMA is actively seeking to engage with employees, employee groups and trade unions to raise awareness and to help them uncover employer activities which may be in breach. Employers and HR teams should therefore prioritise this as an area for focus sooner rather than later. 

Our competition and employment teams have extensive experience in this area, so please do reach out to your usual Burges Salmon contacts if you have any questions. 

This blog has been co-authored with Shachi Nathdwarawala and James Leeman.