Anti-Competitive Practice

Q. Wood Group PSN announced to the market place in 2014 (and again in 2015) that they intended to cut independent contractors rates by 10%, does that constitute anti-competitive practice?

A. The answer to this question was provided by Qdos Legal Services.

Is this a Contractual or Competition Law issue?

The first aspect to consider is the contractual relationship between the agency and the contractor. For there to be a change in the agreed terms and conditions both parties must mutually agree to the changes. A unilateral change of terms and conditions by the agency would potentially be a breach of contract.

The contractor should read his or her agreement and check if there is a term in the contract allowing the agency to review the fees paid. If there is such a contractual provision, then the contractor should approach the negotiations to obtain the best rate possible. If there is no such provision, the contractor should check the agreement to see if it can be bought to an end by serving notice. Where the contract is for a fixed term and there is a clause allowing the agency to change the fees but no provision to allow the termination of the contract by the contractor such a clause may be considered an unfair contractual term.

Competition Law

Competition law is a very complex area and without detailed information it is not possible to comment specifically on the Wood Group PSN.

General Guide

However, the following is a general guide to the law and implications where the possibility of an investigation could be considered by the Competition and Markets Authority.

The newly formed Competition and Markets Authority has the power to investigate abuse of competition law and any suspected breach of the law should be reported to them for consideration. These wide powers include:

1. The conduct of on-the-spot investigations  at company premises, questioning of  employees and copying/seizing of documents. There are civil sanctions for obstructing an investigation.
2. The Competition and Markets Authority may also enter and search domestic premises and have the power to interview individuals who are connected with a business under investigation.
3. Impose interim measures to halt anti-competitive behaviour pending the final outcome of an investigation.
4. Impose fines of up to 10% of an undertaking’s worldwide turnover for the previous business year.
5. Order the parties to an agreement, or the perpetrators of abusive conduct, to cease or modify their activities.

Prohibition

The Competition Act 1998 contains two prohibitions.

1. The first of which prohibits agreements between undertakings, decisions by associations of undertakings or concerted practices which may affect trade within the UK and have as their object or effect the prevention, restriction or distortion of competition within the UK.
2. The second prohibits the abuse of a dominant market position which has or is capable of having an effect on trade within the UK.

For there to be a breach of the Competition Act 1998.  There must be some form of agreement, decision or concerted practice between undertakings which

1. may affect trade within the UK (or part of the UK); eg directly or indirectly price fixing, and
2. has as its object or effect the restriction, prevention or distortion of competition within the UK. Eg setting quotas
3. In addition, the effect on competition and trade within the UK must be “appreciable”.

Dominance 

The Competition and Markets Authority will assess if an undertaking is dominant eg if it possesses a substantial level of market power. To determine this, it will examine the following:

1. Relevant market – The relevant product and geographic markets must be identified before the extent of the firm’s power in the market can be assessed.
2. Market power – A firm will have a substantial level of market power (and so be dominant) if it has the “power to behave independently of competitive pressures”.

This requires an assessment of; constraints on market power (for example, the strength of existing competitors, the potential for new entrants to the market and the extent of buyer power on the part of the firm’s customers); market share,(it is unlikely that a firm will be individually dominant if its market share is below 40%; entry barriers, high barriers to entry to a market make a finding of dominance more likely.

Abuse

The mere holding of a dominant position is not unlawful. It is the abuse of that dominant position which results in an infringement of the Chapter II prohibition which is set out in the Competition Act 1998. The Chapter II prohibition does not define abuse, but sets out a non-exhaustive list of specific conduct that may constitute abuse. In practice, most of the Chapter II cases have involved:

Pricing abuses – Unfair pricing practices include: excessively high pricing; predatory pricing (undercutting a rival with a view to eliminating him from the market); discriminatory pricing (charging different prices to similarly placed customers or the same prices to differently placed customers); fidelity (or loyalty) pricing or discounting schemes, which are designed to discourage customers from placing business with a competitor.
 
Refusal to supply – This includes not only the straightforward refusal to supply customers without objective justification, but has led to the development under Chapter II case law of the “essential facilities” principle. According to this, the owner of a facility such as a sea port may, by virtue of such ownership, have a dominant position on a market, and the refusal to give access to the facility to competitors on non-discriminatory terms may constitute an abuse.
 
Tying – This occurs where, for example, a supplier agrees to supply particular products or services only if the purchaser agrees to buy other unrelated products or services from the supplier.

Note

Just because an agreement is caught by Competition Act it may be one which is excluded or exempted from the Competition rules. Eg where the market share is sufficiently low  and there is no real threat to trade or competition.

When trade is affected amongst member states then the Treaty on the Functioning of the European Union applies Articles 101and 102.

Conclusion

It is important contractors review their documents from a legal aspect to see whether Companies/ agencies have the right to vary contractual terms be it up or down!

The powers too of the Competition Act and Trade between member states must also not be ignored.     

The answer to this question was provided by Qdos Legal Services.