Lawyers in our Competition, Regulation and Trade practice have come together to predict what’s on the horizon in the competition space in the UK and beyond in 2024 – identifying the key themes and trends that businesses will need to navigate in the coming year.
This is Part 2 in our predictions series – read part 1 here.
Competition Law Enforcement in Labour Markets
Ever increasing focus by the CMA and other competition authorities on anti-competitive activity relating to labour and employment
André Pretorius and Vassilena Karadakova
As part of its wider commitment to tackling the cost of living crisis, the CMA has taken an active interest in clamping down on anti-competitive activity in labour markets: in its own words, this “can reduce workers’ ability to earn money and companies’ ability to expand” and therefore have a direct impact on household budgets. Its current areas of focus are (i) wage fixing, (ii) no poaching agreements, and (iii) illegal sharing of competitively sensitive information, which can cover any non-public aspect of a worker’s terms of engagement – not just their salary. This has already translated into live cases: the CMA launched its first ever labour cartel investigation in July 2022 and has recently followed up with a second (in October 2023). Both concern freelancers and employees involved in the production of television content.
The CMA has been very vocal about its commitment to pursuing cases in this area. It has expressly included employment cartels as part of its “Cheating or Competing” campaign, which is aimed at raising competition law awareness outside the legal community. It is also actively encouraging individuals to come forward and report illegal activity in return for a reward (the maximum having recently increased to £250,000), noting that this whistleblower tool may be particularly important in the employment context where disgruntled (ex-)employees may be a key source of intel.
Antitrust scrutiny of labour markets has also become an area of focus in Europe and the US. This means that now more than ever, it is crucial for businesses to ensure that their competition compliance programmes cover HR and recruitment processes. As the CMA has been at pains to highlight, the penalties associated with infringements in this area are significant: fines of up to 10% of turnover, director disqualification, and potential private damages claims.
Competition Litigation: On the Horizon at the CAT
A new phase for class actions: trials, and settlements and distribution
Kim Dietzel and Joe Williams
In 2023, major appeal court judgments upended the litigation funding regime (PACCAR) and added clarity to the test for certification (Forex / Trucks). The CAT has begun to grapple with the cases that have moved beyond certification, applying new and innovative approaches to case management (e.g. the positive cases first approach in McLaren) to try and tame the ‘litigation leviathans’.
2024 should be the year that perhaps the biggest open question in the collective proceedings regime will be answered: will it produce damages awards which will justify the investment? Justin Le Patourel and BT square off in the first ever trial in collective proceedings in February, and the CAT’s judgment in that case will provide the beginnings of the answer to that question.
We refer to “beginnings” because in collective proceedings a damages award is not the end of the matter. That award then has to be distributed.
Distribution is a novel concept in the UK. Experience from other jurisdictions such as the US suggests that distribution is difficult and often to a large degree unsuccessful. Large proportions of damages awards often go unclaimed.
If that trend is repeated here, then 2024 may be a year when we see the yet untested collective settlement regime come into its own. Unclaimed damages can be returned to settling defendants. Large pots of unclaimed damages may amplify incentives to settle. The first collective settlement application was approved by the CAT in December this year (in McLaren). It is uncharted territory, but the CAT should be slow to stand in the way of its exploration.
With talk of some litigation funders cooling their interest in collective proceedings, we wait with bated breath to see which way the CAT moves the temperature dial. Or perhaps it is the government that will move the needle, having secured (in the Commons, at least) an amendment to the DMCC Bill that would partly reverse the PACCAR judgment and allow the use of damages-based agreements with litigation funders in opt-out collective proceedings in the CAT.
Foreign Direct Investment
The ongoing march of foreign investment regimes: expansion, development and active enforcement
Veronica Roberts and Ali MacGregor
The establishment of outbound foreign investment regimes in the US and potentially the EU and elsewhere
On 9 August 2023 the Biden administration issued an executive order directing the US Treasury Department to prohibit certain investments in some entities located in, organised in, or in some cases owned by, foreign persons of a ‘country of concern’ (currently just China) where these relate to specified national security technologies or products and calling on the Treasury Department to establish requirements for notification of US outbound investments in other specified technologies and products that may also present US national security concerns.
Similarly in the European Union, on 20 June 2023 the European Commission announced an initiative to address security risks related to outbound investments by the end of the year and appears to be contemplating its own equivalent regime.
There is a real possibility that other countries may follow suit as a response to the EU and US initiatives. The UK is also reported to be considering its options.
FDI authorities developing and expanding their market intelligence functions, with more transactions being investigated on an own initiative basis
A number of FDI regimes, including the US and UK regimes, allow for non-notified transactions to be investigated at the authority’s own initiative. We are already seeing FDI authorities being more proactive on these investigations and expect this trend to continue.
Growth in number of FDI regimes globally and the number of “sensitive sectors” in which FDI approval is required
In recent years, we have seen a huge growth in the number of new FDI regimes and in the scope of transactions that are impacted. We expect this to continue with, for example, a new regime anticipated in Ireland in 2024. We also anticipate that there will be further intervention in the area of battery metals, as countries compete for resources to undertake their green transitions.
Conversely, the UK Government is considering pro-business amendments to the UK investment screening rules, and has issued a call for evidence on the operation of the regime to date – potentially signifying a second phase in the lifecycle of this regime, where a more targeted approach is taken to identifying transactions giving rise to national security concerns.
Sustainability
Divergence in UK and EU competition law assessment of sustainability agreements – and practical guidance resulting from the CMA’s “open door” policy?
André Pretorius and Phoebe Hirst
Accelerating the UK’s transition to a net zero economy and promoting environmental sustainability are amongst the CMA’s proposed strategic priorities in its 2023/24 Annual Plan. The recent publication of its Green Agreements Guidance (“Guidance“) in October 2023 is an important part of the CMA’s work in this area.
The Guidance aims to assist businesses with their assessment of how UK competition rules apply to environmental sustainability agreements entered into with competitors. Unlike the EU’s sustainability guidance (which was published in June 2023 as part of the EU Commission’s guidelines on horizontal cooperation agreements), the CMA Guidance is standalone.
The EU and the CMA Guidance are similar, but there are some important differences which mean that the competition law assessment of the same sustainability agreement may differ as between the two regimes; this may give rise to challenges for companies contemplating such agreements with a cross-border impact. The CMA definition of sustainability agreements is narrower, and unlike the EU definition it does not include wider societal objectives such as improving working conditions. Another important difference is that the CMA takes a more permissive approach when assessing whether climate change agreements may benefit from an exemption under UK competition law. It will be possible to take account of climate change benefits to all UK consumers, instead of only to consumers in the relevant market.
The CMA will also operate an “open door” policy under which businesses can approach it for informal guidance on proposed agreements, either to raise issues not covered by the Guidance or to seek clarity on the Guidance’s application. It remains to be seen whether companies will wish to put their heads above the parapet and invite CMA scrutiny in this way. There is, however, the benefit that if the CMA does not raise concerns during this process, it will not issue fines if at a later stage it concludes that the agreement infringes competition law – which may make it more attractive for companies to make use of the open door policy. If they do, 2024 is likely to see the publication of summaries of the CMA’s assessments which are likely to provide useful guidance for other companies and their advisers.
On the enforcement side, the CMA has a number of ongoing investigations relating to consumer protection and competition in the sustainability space. For example, following the launch of its Green Claims Code, which aims to help businesses understand their consumer protection obligations to prevent misleading consumers on environmental claims, the CMA is currently investigating alleged greenwashing in the fashion, fast-moving consumer goods and heating sectors. Others are expected to follow. The CMA also continues its investigation into suspected anti-competitive behaviour in the recycling of end-of-life vehicles.
A continued drive by the CMA in the sustainability space is expected, with a focus on emerging markets for environmentally sustainable products, services and technologies. Speaking in January of this year, CMA CEO, Sarah Cardell, indicated that the CMA will be using its market study tool (as it did for the electric vehicle charging sector) or its advocacy function to advise governments, regulators or industry participants, in order to ensure such emerging markets are sufficiently competitive to enable environmentally sustainable initiatives to thrive.
For further information, please contact:
Kim Dietzel, Partner, Herbert Smith Freehills
kim.dietzel@hsf.com
