Competition and Markets Authority, CMA, Recruitment, Competition Act 1998

Competition and Markets Authority Publishes Guidance on Competing for Talent

“I work in HR, what does competition law have to do with me?”

As a recruiter or HR professional, it is unlikely that competition law is top of your agenda, or even on your agenda at all. However, it is an issue that you should not overlook, as the consequences of breaching the law can be severe, including fines for businesses of up to 10% of annual worldwide turnover, prosecution of individuals, and the disqualification of directors for up to 15 years.

In the UK, the main law governing competition between businesses is the Competition Act 1998, which contains, among other things, a prohibition on anti-competitive agreements, known as the Chapter I Prohibition.

Examples of anti-competitive agreements include:

• fixing purchase or selling prices or other trading conditions;
• limiting or controlling production;
• sharing markets or sources of supply; and
• exchanges of price or non-price information.

In the recruitment sphere anti-competitive practices can occur where organisations are competing for talent, and those organisations share information on issues such as salaries or benefits packages.

The Competition and Markets Authority (CMA) – the relevant enforcement body – has recently published guidance on competing for talent to help employers understand how competition law applies to their work.

HR and competition law in the UK

The guidance explains that many interactions between HR professionals, recruiters and employers will not be problematic from a competition law perspective. However, if organisations collude rather than compete when hiring workers or setting pay and other working conditions, this can lead to harmful consequences such as reducing employees’ pay, reducing employee mobility and choice, and limiting a business’s ability to expand.

The guidance clarifies that businesses may compete to hire or retain workers, even if they do not compete for customers, and this makes them competitors in the labour market. It cites the example of a manufacturing company, and a software company, headquartered in the same locality. They do not compete when selling products, but if both want to hire software engineers, they might be competing for the same workers. If the two companies agree not to hire each other’s engineers or agree to cap how much they’ll pay the engineers, that could breach competition law.

Types of anti-competitive behaviour that arise in labour markets

The guidance sets out three main types of anti-competitive behaviour in labour markets.

1. No-poaching

No-poaching is when a business agrees not to hire or poach another business’s employees. This could include a no-hire agreement, or an agreement not to solicit another business’s employees by approaching them with a job opportunity. Such arrangements do not have to be mutual to be caught by the prohibition.

These are distinguished from non-solicitation clauses in certain types of commercial agreements (e.g. secondment agreements) where one party agrees not to hire or solicit the service provider’s employees for the duration of the contract or for a period after it has ended. The guidance explains that these non-solicitation clauses might not break 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.

2. Wage-fixing

Wage-fixing is when businesses that compete for the same type of employees agree to fix pay, benefits or other terms and conditions of employment. This includes for example agreeing the same wage increase rates or setting caps on pay.

It is helpful to illustrate this with this example from the guidance:

“Six competing companies participate in an industry forum where they regularly discuss matters such as new regulations, standards and other industry developments. Near the end of the financial year, one member emails the others asking whether they are also experiencing pressure from employees to increase wages for specific roles. The other members of the forum express similar concerns. After that, they all agree to limit salary increases for those roles at 2% for the year. This is likely to be considered an illegal wage-fixing agreement.”

3. Exchange of competitively sensitive information

Finally, but perhaps of most relevance to HR professionals, is the exchange of competitively sensitive information, i.e. information that reduces uncertainty as to the operation of the market in question, and/or could influence the competitive strategy of other businesses.

Benchmarking is commonplace across many sectors and can often be beneficial in making decisions on pay and benefits. However, it is important that organisations that compete for talent do not stray into the exchange of information that is competitively sensitive as this can restrict competition. Whether an exchange of information between businesses breaks competition law will be fact specific and depend on the nature of the information, how the information is exchanged and market characteristics.

Working example

Take the example given in the guidance, where HR managers from a number of businesses in a specific sector regularly get together to discuss issues relevant to the industry, but following the arrival of a new member, meetings now also include informal chats about pay and recruitment strategies. This crosses the line into sharing competitively sensitive information.

Contrast this with the situation where HR managers from a number of businesses in a specific sector regularly get together to discuss issues relevant to the industry. They are aware of the competition law risks involved in extending the discussion to competitively sensitive matters such as salaries and are careful to stick to the agenda. Any new members are properly briefed.

The guidance gives the following high-level principles:

• Public / confidential – Genuinely public information (that is, information that is already readily available to the public) is generally unlikely to be competitively sensitive.
• Aggregated / individualised – The more easily information is attributable to a particular business, the more competitively sensitive that information is likely to be. Exchanging information that is appropriately anonymised and aggregated, such that the individual inputs cannot be reverse engineered, and the outputs do not give an insight into another business’s strategy, is less likely to raise competition law concerns.
• Past/current/future – Older information is less likely to be competitively sensitive than current information or statements concerning current events. Statements concerning future events are more likely to be competitively sensitive.

Particular care should be taken if you are sent competitively sensitive information, as even unilateral sharing can breach competition law. If you receive unsolicited information of this type, you should not simply ignore it as you will be presumed to have taken such information into account unless you publicly distance yourself from it or report the contact to the appropriate authorities.

Care should also be taken when conducting collective bargaining that this does not result in wage fixing. The guidance contains an example to illustrate when collective bargaining might cross the line and, if in doubt, you should seek legal advice.

Practical guidance for employers

The guidance provides practical advice for employers and sets out how concerns about suspected anti-competitive behaviour can be reported to the CMA.

Steps employers can take include

• Ensure an understanding of how competition law applies to labour markets.
• Don’t agree with other businesses to fix wages.
• Don’t agree with other businesses that you will not approach or hire each other’s employees.
• Don’t share competitively sensitive information about your business or employees with competing employers (either directly or indirectly e.g. through an independent third-party provider).
• Provide recruitment staff with training on competition law and how it applies in the recruitment context.
• Ensure solid internal reporting processes are in place, and that staff are aware of these and how they can use them.

How can we help?

If you’re unsure how competition law affects your recruitment practices, our employment law team can help. We advise HR professionals on how to stay compliant, avoid legal risk, and implement best practice when competing for talent.