Competition authority warns employers to avoid anti-competitive HR practices

Warning includes sharing information and wage fixing and no-poaching agreements

On 9 February 2023, the UK Competition and Markets Authority (“CMA”) published new competition law guidance targeted at employers.  Its purpose is to remind 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. 

This sends a clear signal that the CMA is concerned that anti-competitive agreements in labour markets exist, and serves as a warning for businesses to ensure that their HR policies and practices, as well as contractual provisions, comply with competition law. The penalties for breaching competition law can be severe and can include significant financial penalties and criminal prosecution.

The CMA’s latest guidance follows an enforcement drive by competition authorities outside the UK on common employment practices in labour markets (please see our previous briefing).          

What are the key competition law concerns?

Competition law prohibits anti-competitive agreements or collusion between businesses.  In labour markets, the three main areas of concern are:

No-poaching agreements: these are 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: these are 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 that the business offers to its employees.  This includes information that is not publicly available relating to wages, bonuses, and other working conditions. 

Anti-competitive agreements can negatively impact labour markets, for example, by reducing employees’ compensation packages as well as their mobility and choice.  It should be noted that this can include not only written arrangements, but also verbal/informal agreements.

What are the consequences for breaching competition law?

Financial penalties for breaching competition law can be high (up to 10 percent of a business’ group worldwide turnover) and there are also individual penalties, such as director disqualification orders and even criminal prosecution.

What should businesses 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, businesses should act 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.