An ACCC first: Collective bargaining class exemption for small businesses

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.¹

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.²

The class exemption for collective bargaining will apply to:

• 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; and
• Franchisees and fuel retailers governed by either the Franchising Code of Conduct or the Oil Code of Conduct, regardless of their aggregated turnover.

This means that, instead of individual businesses having to independently negotiate terms and prices with a target, businesses that fall within this exemption can now work together, perhaps through an industry or group representative, to collectively negotiate supply terms and prices “without needing to worry about a possible competition law breach.” ³

An important limit on the exemption is that it will not extend to ‘collective boycott’ conduct. This means parties cannot agree to ‘stick together’ by agreeing that they won’t deal or negotiate with the target company individually, or that they will all refuse to deal with a particular supplier. The inability to agree to stick together in this way significantly reduces the power of any bargaining group because the target can simply refuse to deal with the parties as a group if it wishes. Nevertheless, there are many circumstances where all parties see benefit in being able to negotiate as a group. The ACCC class exemption will now provide such groups with comfort that they can negotiate as a group without contravening competition laws.

To access this exemption, bargaining groups must complete a one page form and lodge it with the ACCC. There is no fee and immunity from competition laws in respect of the collective bargaining conduct 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).⁴

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.⁵

What competition laws normally apply to collective bargaining arrangements?

Under the Competition and Consumer Act 2010 (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.⁶ For example:

• If a group of businesses 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 businesses agree that they will adopt the same terms to buy particular goods or services from a particular supplier, this might also be said normally to contravene cartel laws.

Class exemptions

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.⁷

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).⁸

Some industry and franchisee representatives already negotiate on behalf of groups of customers and franchisees but, in order to comply with the competition laws, must ultimately offer the terms and prices achieved to each member of the group to accept or reject individually. Under the cartel laws, companies cannot make this decision as a group where they are likely to be “in competition” with each other for the relevant acquisition. This class exemption removes the requirement for eligible businesses to make unilateral decisions in respect of group negotiations with target businesses and, once the relevant form has been lodged with the ACCC, can instead negotiate together about the terms on which they will do business and prices that the group is willing to pay or charge.

While the ACCC considers that franchisors and suppliers can also benefit from more supply certainty due to bulk ordering and savings from aligning transport and distribution, we are likely to see this class exemption increase the bargaining power of buying groups and franchisees once these businesses are permitted under law to negotiate terms and prices together.

Therefore, for the period for which this class exemption is in force (10 years unless revoked earlier), groups of eligible businesses can collectively negotiate supply terms 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 still 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;⁹ 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.¹⁰

The ACCC considers that this new class exemption will remove the need for most small businesses 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.

What’s next?

The ACCC has announced that it will release the collective bargaining class exemption notice form along with further information and guidance in early 2021. In the meantime, if you require any further guidance or advice on how this exemption might apply to your business or dealings, please contact a member of the HWL Ebsworth competition or franchising law teams below.

This article was written by Richard Westmoreland, Partner, and Amy Campbell, Senior Associate. 

^1.https://www.accc.gov.au/media-release/class-exemption-will-enable-small-businesses-to-collectively-bargain
^2. Page 4 of Explanatory Statement of the Competition and Consumer (Class Exemption – Collective Bargaining) Determination 2020 (Explanatory Statement) https://www.accc.gov.au/system/files/public-registers/documents/Explanatory%20statement%20%E2%80%93%2019%20October%202020.pdf
^3. https://www.accc.gov.au/media-release/class-exemption-will-enable-small-businesses-to-collectively-bargain
^4. Page 5 of Explanatory Statement.
^5. https://www.accc.gov.au/media-release/class-exemption-will-enable-small-businesses-to-collectively-bargain
^6. For example, see s45AD(3)(iv) and s 45AD(2)(d) of the Competition and Consumer Act 2010 (CCA) read with s45AD(1) and s45AD(4).
^7. S95AA(1) of the CCA.
^8. Page 3 of Explanatory Statement.
^9. s88 and s90 of the CCA.
^10. s93AB and s93AC of the CCA.