On 22 October 2020, the ACCC announced a class exemption that, from early 2021, will provide businesses and independent contractors with an exemption from normal competition laws to allow them to form bargaining groups and collectively negotiate with their suppliers, processors, franchisors or fuel wholesalers (the target) without needing to apply for ACCC approval. The exemption will be able to be used by Dealers to allow them to collectively negotiate (for example, via their Dealer Councils) with Manufacturers.
This is the first time the ACCC has used its new class exemption power. This power enables it to make ‘safe harbour’ determinations which have the effect that normal competition laws will not apply to classes of conduct that fall within the declaration made by the ACCC. The ACCC will grant these exemptions where it considers the relevant type of conduct is unlikely to raise competition concerns – either because of the parties engaged in the conduct or the nature of the conduct itself.
- The collective bargaining class exemption will apply to:
- franchisees and fuel retailers governed by either the Franchising Code of Conduct or the Oil Code of Conduct, regardless of their aggregated turnover; and
- businesses and independent contractors that form, or are members of, a bargaining group and who each had an aggregated turnover of less than $10 million in the financial year before the bargaining group was formed.
- The class exemption will apply to Dealers because they are deemed franchisees by the Franchising Code of Conduct.
Dealers for many years now have formed Dealer Councils to, amongst other things, represent them in their dealings and negotiations with Manufacturers. These dealings and negotiations particularly arise when a Manufacturer wishes to propose a new dealer agreement, amend the terms of a dealer agreement or amend KPIs or the payment of bonuses. Often these negotiations are constrained by the concern not to contravene provisions in the Competition and Consumer Act 2010 (CCA). This has sometimes led to Dealer Councils applying to the ACCC for an ‘authorisation’ to engage in collective bargaining. The ACCC authorisation process can be slow and costly. The new class exemption means that Dealer Councils can now collectively negotiate terms of dealer agreements, KPIs and bonuses ‘without needing to worry about a possible competition law breach.’
An important limit on the exemption is that it will not extend to ‘collective boycott’ conduct. This means Dealers cannot agree to ‘stick together’ by agreeing that they won’t deal or negotiate with a Manufacturer individually, or that they will all refuse to deal with a particular Manufacturer. The inability to agree to stick together in this way significantly reduces the power of any Dealer Council because the Manufacturer can simply refuse to deal with the Dealers as a group if it wishes. Nevertheless, there are many circumstances where all parties see benefit in being able to negotiate, as a group as is evident from the custom of most Manufacturers of consulting with Dealers and their Dealer Councils when they propose to amend their dealer agreements. The ACCC class exemption will now provide Dealers, Dealer Councils and Manufacturers with comfort that they can negotiate as a group without contravening competition laws.
To access this exemption, Dealer Councils must complete a one page form and lodge it with the ACCC. There is no fee and immunity from competition laws will then commence automatically. At this stage the ACCC has indicated that it expects this notice form will require inclusion of details of the group, the target (s), what the group proposes to bargain about, and details for a contact person (which can be described in general terms, so that a new notice is not required as members of the group change or negotiations occur with new targets).
The ACCC anticipates the impact of this class exemption to be far reaching, expecting that this exemption will cover more than 98% of Australian business.
What competition laws normally apply to collective bargaining arrangements?
Under the CCA, if companies are, or are likely to be, ‘in competition’ with each other in relation to the acquisition of particular goods or services, those companies may contravene cartel laws if they collectively negotiate with a target business about terms, conditions, price or businesses they deal with in respect of goods or services for which they compete to acquire or supply. For example:
- if a group of Dealers agree to pay the same price that has been negotiated by the group for goods or services in respect of which they are, or are likely to be, competitive, that agreement may fall within the definition of a price fixing agreement; and
- if a group of Dealers agree that they will adopt the same terms to buy particular goods or services from a particular Manufacturer, this might also be said normally to contravene cartel laws.
Since 2017, the ACCC has had the power to grant, by way of legislative instrument, a class exemption for conduct that may otherwise risk breaching competition laws, including the cartel laws, where the ACCC is satisfied that:
- the conduct will not have the likely effect of substantially lessening competition; and
- the public benefit would outweigh the detriment that would be likely to result from the conduct.
Under the collective bargaining exemption, the ACCC has identified the following benefits for businesses negotiating as a group rather than individually:
- reducing the time and cost of negotiating contracts (compared to multiple bilateral negotiations);
- creating opportunities to negotiate terms that better reflect the group’s needs (compared to standard form contracts); and
- gaining better access to information (for example by sharing relevant information or sharing the costs of engaging a professional advisor).
For the period for which this class exemption is in force (10 years unless revoked earlier), eligible Dealer Councils can collectively negotiate, among other things, terms of dealer agreements and, by completing a simple form, will no longer be at risk of contravening the cartel laws set out above by engaging in collective bargaining conduct that is within the parameters of the class exemption.
Existing exemption process under the CCA
Until this class exemption comes into effect (likely to be early 2021), collective bargaining by competitors can only be exempted from the cartel laws if the conduct is first authorised by or notified to the ACCC, requiring that:
- for conduct to be authorised, the parties satisfy the ACCC that the conduct will not have the likely effect of substantially lessening competition and that the public benefit would outweigh the detriment that would be likely to result from the conduct; and
- for collective bargaining to be notified, the parties must lodge a valid collective bargaining notification with the ACCC and the ACCC must be satisfied that any benefit to the public that is likely to result outweighs any detriment to the public that is likely to result.
These existing processes can be cumbersome and expensive to use. The ACCC considers that this new class exemption will remove the need for most small businesses, including Dealers, to use the authorisation or notification processes. Nevertheless, the authorisation or notification processes will still be available for businesses and conduct that fall outside the class exemption threshold.
The ACCC has announced that it will release the collective bargaining class exemption notice form along with further information and guidance in early 2021.
This article was written by Evan Stents, Lead Partner, Automotive Industry Group, HWL Ebsworth Lawyers