Competition Small Business And Collective Bargaining - Will The New Laws Strike The Right Balance?

Legislation to change the competition law provisions of the Trade Practices Act 1974 (Act) was recently introduced into Parliament. A key proposal is the introduction of a notification process for 'small business' collective bargaining. This is intended to allow businesses rapidly to obtain immunity for certain collective arrangements, and it raises important issues for the Australian Competition and Consumer Commission (ACCC) and industry alike. In particular, there is a risk that difficulties in the implementation and administration of the process may result in unintended exemptions from the law.

This article outlines the changes, discusses what these changes will mean for business, and raises some potential issues and concerns with the new process.

What Are The Existing Competition Issues For Collective Negotiations?

Competitors wanting to collectively bargain currently face a significant risk that any arrangement they reach will breach the prohibitions in the Act against price fixing and exclusionary provisions (sometimes referred to as collective boycotts). At present, parties who wish to conduct collective negotiations can seek statutory immunity to do so by obtaining an 'authorisation' from the ACCC. Generally speaking, the ACCC cannot grant an authorisation unless it is satisfied that the conduct is likely to result in a net public benefit. While an authorisation will protect a collective bargaining arrangement from action under the Act, it is a process that is often expensive and time consuming.

What Are The Proposed New Rules For Collective Bargaining Arrangements?

The Trade Practices Legislation Amendment Bill 2004 (Bill) proposes to introduce a 'notification' process, which will be an alternative to the existing authorisation process, to permit collective bargaining by small businesses. This is intended to be a cheap, simple and speedy mechanism to allow collective contractual negotiations to take place, without the risk of parties to the negotiations contravening the Act. The new notification process, modelled on the existing exemption procedure for third-line forcing,1 Will have the following features:

It is targeted at 'small businesses' using a transaction value approach. The transaction limit is set at $3 million per annum for each business in the collective bargaining group, although this amount can be varied by the regulations. This approach is unusual because it has nothing to do with the sizes of the businesses involved.

A valid notice will take effect 14 days after it is lodged with the ACCC (provided the ACCC does not object to it within this period). This means that immunity will ordinarily be obtained quickly.

A notice provides the collective bargaining group with immunity for a period of three years.

The ACCC may object to a collective bargaining notice involving price fixing or exclusionary provisions only if it is satisfied that any likely public benefit will not outweigh the public detriment resulting from the conduct

It is the framing of this test that is significant. Under the existing authorisation process, an applicant bears the burden of satisfying the ACCC that there will be a net public benefit from a proposed collective bargaining arrangement. Under the new notification process, the burden will be reversed, and it will be the ACCC which must satisfy itself that the public benefits do not outweigh the detriments before it can object to the notified conduct.

Before issuing a final objection notice, the ACCC must issue a 'conference notice', which involves:

- providing the applicants, and other interested persons, with a draft objection notice and a summary of its reasons, and

- giving all interested persons an opportunity to call for and attend a conference in relation to the draft objection notice.

Third parties (such as a lawyer or business adviser) may make a collective bargaining notification on behalf of a group of businesses.

Why Have These Changes Been Suggested?

The proposals arise from the recommendations of The Review of Competition Provisions of the Trade Practices Act, chaired by retired High Court judge Sir Daryl Dawson (Dawson Review), which reported to the government in January 2003. The Dawson Review found that collective bargaining by small businesses when negotiating with large businesses may benefit the community by improving the bargaining power of small businesses. The Dawson Review considered that, while '[c]ollective bargaining at one level may lessen competition ..., at another level [it] may be in the public interest, provided that the countervailing power is not excessive'.2

With a view to reducing the regulatory burden upon small businesses, the Dawson Review favoured the introduction of a notification process (as an alternative to authorisation) to provide a speedy and simple means of enabling small businesses to take themselves outside the Act in order to collectively bargain with big business, in circumstances where such conduct will benefit the public.3

How Has The ACCC Previously Dealt With Collective Bargaining Arrangements?

Over the years, the ACCC has considered numerous applications for authorisation of collective bargaining arrangements, involving groups such as:

chicken growers bargaining with chicken processors

dairy farmers bargaining with milk processors

concrete truck owner/drivers bargaining with ready mixed concrete companies

TAB agents and hotels bargaining with Tab Limited

newsagents bargaining with major publishers, and

local councils tendering with waste management providers.

Many of these arrangements have ultimately been authorised by the ACCC. However, nearly all of the collective bargaining arrangements authorised have exhibited some (or all) of the following characteristics:

They have involved small businesses seeking to collectively bargain with significantly larger businesses. Often the smaller businesses have been found to be in a weak bargaining position, because of the nature of the industry in which they operate.

The bargaining groups have been limited in both size and scope. Industry-wide bargaining groups have generally been viewed with concern by the ACCC.

They have been subject to many conditions imposed by the ACCC, which were designed to limit the anti-competitive effects of the conduct. For example, an authorisation granted to Australian dairy farmers imposed conditions significantly limiting the size, scope and activities of collective bargaining groups.

Collective boycotts have not been permitted as a part of the bargaining process.

Having regard to these considerations, ACCC authorisations of collective bargaining groups have often been granted on the basis that the detriment of the conduct is likely to be minimal. This situation is to be contrasted with proposed collective arrangements between larger and more powerful businesses, which have not always been viewed favourably by the ACCC.4

What Are The Issues Arising From The New Collective Bargaining Notification Process?

The proposed notification process for collective bargaining groups represents a significant development in Australian competition law. It is a process that gives businesses the opportunity to quickly obtain an exemption from some of the important rules governing commercial conduct in Australia, and it is worthy of close scrutiny. In particular, the amendments raise the following issues requiring careful consideration:

While the process is designed to assist small businesses, it can be used by businesses of any size, provided they comply with the $3 million transaction limit. This raises the question of how the ACCC will deal with notifications of price fixing and exclusionary conduct lodged by medium or even large businesses.

The process effectively shifts the burden of proof of establishing the benefits and detriments of the conduct away from the parties seeking to collectively bargain and onto the ACCC. It also provides applicants with automatic immunity in the absence of objection by the ACCC.

These changes may add to the ACCC's workload, particularly if parties lodging notification provide it with the bare minimum of information.

In order to prevent a collective bargaining arrangement coming into effect, the ACCC must reach its preliminary conclusions and issue a conference notice within 14 days. It is questionable whether the ACCC will have the capacity to carefully consider and challenge every problematic arrangement within such a timeframe.

Currently, the authorisation process provides a means by which the ACCC can play an proactive role in shaping the nature of the authorised conduct. For example, the authorisation process allows the ACCC to spell out the conduct allowed, and to impose conditions to protect competition.

It is not clear that the ACCC will be able to play this role in the new process, and it is given no express power to impose conditions on notifications. This may result in the formation of more expansive and effective collective bargaining groups.

While the new process is modelled on that currently in place for third line forcing conduct, collective bargaining is inherently more problematic.5 Prohibitions against price fixing and exclusionary conduct are key principles of competition law, and the Dawson Review itself recommended increased penalties, and even criminal sanctions, for this type of conduct. It is appropriate, therefore, that immunity is not granted lightly.

The new notification process may result in exclusionary provisions and collective boycotts becoming a common part of collective bargaining notifications. In the past, the ACCC rarely allowed businesses to engage in collective boycotts, and it argued before the Dawson Committee that the notification process should not allow boycotts.

The possibility of parties being permitted to collectively boycott is significant because it enhances the power of the collective against the 'target'. In light of the proposed changes, it is not clear how the ACCC will deal with collective boycott notifications.

Targets of collective bargaining groups will not be able to apply to the Australian Competition Tribunal for a merits review of an ACCC decision not to object to a notification, although the right of administrative review under the Administrative Decisions (Judicial Review) Act 1977 will remain.

The regulations to accompany the Bill have not yet been released. Some of the problems discussed above may be addressed in the regulations, particularly in the form of carefully drafted requirements for a valid collective bargaining notice.

By shifting the burden and streamlining the process, the government is making clear its view that small business collective bargaining arrangements involving individual transactions up to $3 million are usually beneficial and should ordinarily be allowed to go ahead without objection from the ACCC. While it is likely that many small business collective bargaining notices lodged under the new legislation will not raise significant concerns, the real test of the process and the new law will come from the more difficult cases, which may raise some of the issues outlined above. These cases might be resolved by the ACCC taking proactive steps to ensure the efficiency of Australian markets is not undermined by overly broad exemptions from competition laws. It can do this by investigating notifications that raise prima facie concerns and, where the benefits do not outweigh the cost, disallowing them.

Having said this, it is also clear that business consumers or suppliers that may be harmed by collective bargaining groups across a wide variety of Australian industries should not consider themselves bystanders to the process. They must be prepared to raise their competition concerns with the ACCC.

Footnotes

1. Third line forcing is a type of exclusive dealing prohibited by section 47 of the Act. However, this prohibition is the subject of significant changes proposed in the Bill.

2. Dawson Review at p 115.

3. Dawson Review at p 118.

4. For example, when a group of 10 banks sought authorisation of a collective agreement to offer a basic bank account with agreed minimum features to low-income consumers, the ACCC indicated that it would deny authorisation and the application was subsequently withdrawn.

5. Whether or not third line forcing should be prohibited outright under the Act has always been debatable. Under the proposed amendments to the Act, it will be subject to a substantial lessening of competition test.

The content of this article is intended to provide a general guide

to the subject matter. Specialist advice should be sought about your

specific circumstances.

Mr Peter McDonald 

Freehills

MLC Centre 

19-29 Martin Place

Sydney

New South Wales 

NSW 2000

AUSTRALIA

Tel: + 61 29225 5000

Fax: + 61 29322 4000

E-mail: [e-mail]

URL: www.freehills.com.au

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