CMA report on competition in UK labour market

Competition law enforcement has traditionally focused on product markets. However, regulatory interest in labour markets is growing worldwide, including in the UK.

Tackling suspected unlawful collusion in labour markets has become an area of focus for the Competition & Markets Authority (“CMA”), with ongoing investigations into employment practices in the TV production and broadcasting sectors and in the fragrances industry.

On 25 January 2024, the Microeconomics Unit (part of the CMA, which conducts research to inform the CMA of emerging economic issues) published a report on trends within the UK labour market, focusing on employer market power and market concentration. The report is intended to provide an evidential basis to support policy making in relation to labour markets in the UK, as well as further research into competition and labour markets. In this briefing, we highlight some of the key findings from the report and consider CMA enforcement activity in this area and wider UK policy development. These are matters which all employers and HR professionals should be across, irrespective of sector/industry.

Key findings of the report

Market concentration varies significantly across labour markets 

Overall, the level of employer market power (ie the ability of firms to pay workers less than the value of their contribution to the firm’s output) in the UK has, since 1998, been relatively stable or declining. Also, labour market concentration (ie how many firms there are in a particular market) is roughly the same as 20 years ago. However, there is substantial industry variation in market concentration across labour markets. Geographically, labour markets are much more concentrated outside London and the South East. In terms of labour market concentration in individual industries:

  • Labour market concentration has risen significantly in administration and support services, utilities, and mining and quarrying.
  • Manufacturing, transport and storage and financial services are particularly concentrated.
  • Public administration, education, health and social work, and utilities are, on average, most heavily concentrated.

This does not mean that the CMA will necessarily focus or limit its enforcement activity to the above industries.

The law on non-competes may need updating

Non-compete clauses, which restrict the ability of employees to work for rival firms for a period of time after leaving their current employer, do not generally breach UK competition law. However, the report finds that almost a third of workers are affected by non-compete clauses which prevent them from joining a competitor. Given the prevalence of non-competes across the economy and their impact on worker mobility, the CMA considers that employment law may need updating. This would appear to support the Government’s intention, announced in May 2023 (as part of a package of measures to boost the productivity of British businesses), to legislate to limit post-term non-competes in employment contracts to three months.

Recent and ongoing CMA activity in labour markets

The CMA has been active in identifying and taking enforcement action against potential competition issues in UK labour markets. This includes:

  • Issuing guidance, in February 2023, to help employers identify and avoid collusion through wage-fixing, no-poaching agreements and information sharing.
  • Opening an investigation, in October 2023, into suspected breaches of competition law in relation to the purchase of freelance services and the employment of staff supporting the production, creation and/or broadcasting of TV content (excluding sport). A separate investigation, launched in July 2022, is ongoing in relation to sport content.
  • In January 2024, extending its investigation into the supply of fragrances and fragrance ingredients, to reciprocal arrangements relating to the hiring or recruitment of certain staff involved in the supply of fragrances and/or fragrance ingredients.

In its annual plan for 2023 to 2024, the CMA refers to potential competition issues within UK labour markets as a priority in relation to its strategic aim of ensuring that people can be confident they are getting great choices and fair deals. Therefore, we expect to see further enforcement activity by the CMA in this area.

Impact of the report?

Sarah Cardell, CEO of the CMA, has stated that the CMA will use the findings of the report to inform the CMA’s work in combatting anti-competitive conduct in labour markets, including its existing investigations (referred to above). We also expect that the report’s finding will be used to inform broader policy developments, such as the increase in the number of self-employed people in the gig economy, for example.

Businesses are likely to be reassured that the CMA’s focus will remain on deterring cartel conduct, which by its very nature is detrimental to the proper functioning of labour markets, rather than expanding the work of the CMA into employment law and policy, which has traditionally fallen outside the scope of competition law. So, for instance, the CMA does not intend to interfere in genuine collective bargaining arrangements involving self-employed workers. However, consideration of what constitutes a genuine collective bargain in the gig economy, for instance, where there are an increasing number of self-employed people, is likely to be on the CMA’s agenda.

There is greater focus at this time in relation to non-competes as they face increasing scrutiny. Employers and HR professionals across all sectors/industries should therefore take this opportunity to review their use of non-competes and, of course, also ensure that they are observing the CMA’s guidance on wage-fixing, no-poaching agreements and information sharing.

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Every piece of content we create is correct on the date it’s published but please don’t rely on it as legal advice. If you’d like to speak to us about your own legal requirements, please contact one of our expert lawyers.

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