Many people would not be aware that it is currently illegal for any competitors – even small businesses, or members of the same franchise or distribution network – to collectively negotiate or bargain. To many, this may not make much sense, as collective bargaining by small businesses generally does not damage competition and can create significant transactional efficiencies whilst addressing imbalances in bargaining power.
Australia’s competition law prohibits competitors from acting in a coordinated way in negotiation processes, unless those businesses hold an approval from the ACCC through authorisation or notification. Increased customer mobility and internet selling has created new “competitors”, and the market strength of supermarkets, major shopping centres, third party websites and global delivery businesses has created new reasons for collective negotiations. However, the time and resource burdens involved in the ACCC’s authorisation and notification processes, can discourage businesses from accessing the benefits of collective bargaining.
What is a class exemption?
Since 2017, the ACCC has had the power to grant exemptions to classes of persons to engage in types of conduct that might otherwise breach competition law.
Based on public consultation, the ACCC has, for the first time since the power was introduced, decided that there is a net public benefit for certain businesses to be able to collectively bargain, when weighed against likely small anti-competitive downsides.
Who is eligible?
The class exemption will apply to:
- Small businesses or independent contractors with an aggregate turnover of less than $10 million in the preceding financial year, to form or join a collective bargaining group to negotiate with suppliers or customers.
- Franchisees (regardless of their aggregated turnover), to collectively bargain with their franchisors.
- Fuel retailers (regardless of their aggregated turnover), to collectively bargain with their fuel wholesaler.
The ACCC has suggested that this covers more than 98 per cent of all Australian businesses.
How will the class exemption work?
From early 2021, eligible businesses will be able to lodge a simple form that will provide the business with legal protection from collective bargaining prohibitions.
The class exemption will simply provide a new avenue (outside the authorisation or notification processes) for eligible businesses to enter collective negotiations without the spectre of potential competition law breaches.
What does it mean?
Increase in collective negotiation: It is likely that the class exemption will encourage collective negotiations across a range of industries. It will also make it easier for third parties, such as lawyers, to put groups together. Particularly in industries with strong franchise and small business presence, such as retail, food and beverage or even accommodation services, we are likely to see a tilt in bargaining power afforded to the smaller players. We may also see additional types of group action, targeting major landlords, or in relation to supplier terms.
Class exemption does not require coordination: The class exemption does not compel anyone to join a collective bargaining group. Similarly, it does not give an express right to negotiate to any group organisers, or bind any person to any outcome.
Target does not have to agree to submit to collective negotiation: It is likely that brand owners, suppliers and franchisors will receive more requests for collective negotiations. Whilst it can create efficiencies for a customer, supplier or franchisor target to negotiate with the bargaining group, they are not compelled to do so. The target business will be free to negotiate with each individual member business as they see fit.
Beware other competition law restrictions: Importantly though, this exemption does not give small businesses free range to engage in cartel conduct or other conduct that might have the purpose or effect of substantially lessening competition. For example, collective negotiations cannot allocate markets between parties or set retail prices. Where there is not a single target of the coordination, the exemption is not available.
Where to from here?
Assuming the class exemption is not disallowed by Parliament, it will become effective in early 2021. Until then, businesses who may be eligible to enjoy the benefits of the class exemption must not “jump the gun”. They should wait for the exemption to become effective or consider their options for interim negotiations moving forward.
For those seeking to use the process, or join a group, when the law is enacted:
- Be certain you have the benefit of one the categories in the class exemption.
- Lodge a form to qualify for the exemption.
- Commence group negotiations, but ensure that the forum is not used for prohibited collusion (such as market sharing and price fixing), that is outside the exemption.
For recipients of a request for collective negotiation:
- Consider what might be behind the request, and whether there are additional threats or risks such as a class action or regulatory intervention.
- Seek confirmation from the group that they have the benefit of a relevant collective negotiation exemption.
- Decide whether group negotiation is appropriate in all the circumstances.
- Develop a strategy to respond to the request, and address any underlying issues.
If you would like to know more, we recommend getting in touch.
This article was co-authored with Benjamin Kende.