Business owners understand how best to comply with UK competition law when negotiating contracts. Competition law is there to protect both businesses and consumers. If UK competition law isn't complied with, The Competition and Markets Authority (CMA) can take legal action against companies and individuals.
If the CMA investigates, it could result in a large company fine and personal consequences for the company directors, including disqualification as a company director under The Company Directors Disqualification Act 1986.
According to the CMA, 10 company directors were disqualified because of competition law breaches.
‘’The risks of getting caught breaking competition law is increasing. The CMA is toughening its approach to enforcement, with fines on companies accompanied by increased use of powers to obtain the disqualification of directors of the companies involved’’.
Andrea Coscelli, CMA Chief Executive
To help, here are six tips to reduce the risks of your business falling foul of competition law.
Staying compliant with competition law
1. Avoid conversations on pricing, strategy & customers
Having a discussion with a rival firm about pricing before negotiating a new contract with a third party can seem like good business planning until you understand the risks of breaching competition law and the consequences.
By having a chat about prices and forming a cartel or breaking other areas of competition law, the business could be fined up to 10% of its annual turnover. If your business trades internationally, then it is your worldwide turnover figure that is used to calculate the maximum fine.
In addition, company directors can be disqualified from being a director of a company for up to 15 years, and, in cases of cartel activity, individuals could face criminal prosecution. In serious cases, this could result in imprisonment for up to 5 years and/or a fine and the confiscation of assets under The Proceeds of Crime Act 2002.
If you happen to be at an event where any of your competitors are present, it's always safest to avoid talking business with rivals.
2. Lookout for anti-competitive practices
It is no defence for a company director or a salesperson to say that they did not know that what they were doing was wrong and contrary to UK competition law.
Few people in business are competition law experts, and it is easy to get sucked into what starts out as a friendly local trade association and ends up as a price-fixing cartel, with all the financial and reputational damage consequences for the companies and individuals involved.
3. Size doesn't matter
Competition rules apply to small and big businesses. It doesn't matter if you don't trade overseas or contract to secure internationally sourced goods.
If you break the law, firms can be fined up to 10% of global turnover, and individuals may be banned or face imprisonment for up to 5 years.
4. Anti-competitive behaviour isn't just price fixing
When you think of the risks involved in falling foul of competition law, most people think of cartels. However, under Chapter II of the Competition Act 1998, you can also be in breach of competition law if you abuse a dominant position in the marketplace.
A dominant position can arise if you have more than 40% of the market share. Examples of anti-competitive behaviour include undercutting competitors by selling at less than the cost price to drive out competition or tying or bundling purchases so some customers can only purchase an item if they tie in other items that they would prefer not to buy from you.
5. Put anti-competition law training in place
Whether you are a company director, head of sales or procurement or a department head, you need to know enough about competition law to know when something is not right.
That way, the business can be alerted and hopefully act to quash any potentially anti-competitive practices that are thought to be money-making ideas by over-enthusiastic company directors or employees.
It also pays to remember that anti-competition training should not be a one-off. Risk management training should regularly be reviewed and updated, so you keep abreast of developments in competition law. That's because business reputations are hard-won but can be easily lost if the company is not committed to complying with competition laws.
6. If you make a mistake, come clean
You may receive leniency and avoid sanctions if you speak up first.
Report any concerns you have to the CMA:
- Email: cartelshotline@cma.gov.uk or;
- Phone: 0800 085 1664 or 020 3738 6888.
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