UK government plans to revamp holiday pay calculation for part-year workers
Out-Law Analysis | 26 Jul 2021 | 1:34 pm | 7 min. read
The way in which the UK’s Competition and Markets Authority (CMA) examines the state of competition in markets, engages with companies over alleged breaches of competition law, and reviews markets and proposed mergers, is set to change.
The UK government is proposing to give the CMA enhanced powers to increase the administrative fines it can issue for failing to comply with its requests for information and cooperation, while other planned changes are aimed at speeding up CMA investigations by allowing earlier resolutions. Amendments planned to the UK’s merger regime are designed to ensure better oversight of so-called “killer acquisitions” in fast moving markets.
The proposals form part of a broader package of reforms, which include a number of planned changes to the UK’s consumer rights regime. The government’s proposals follow the publication of a number of reports, including the Furman Review, the Lord Tyrie proposals, and the Penrose Report, which all advocated for wide ranging reforms. The government is now consulting on its proposals to take forward some of the recommendations raised previously.
Whilst no changes are proposed to the core prohibitions on anti-competitive agreements or abuse of dominance, the consultation proposes a number of potential amendments to update and strengthen the CMA’s competition law enforcement regime.
The government has proposed an expansion of the CMA’s leniency programme to allow businesses that self-report competition law infringements also to secure immunity from damages actions. Whilst the leniency regime currently grants up to 100% immunity from fines, criminal prosecution and director disqualification, leniency applicants can still be sued by customers for damages – an outcome that may deter companies from making leniency applications and, undermine the CMA’s ability to detect cartel activity.
This would be a significant revision of the UK’s leniency process and damages regime. However, it raises questions as to the impact of this proposal on the rights of victims of anti-competitive behaviour to seek compensation. The principle of joint and several liability also means that the leniency applicant’s co-cartelists may find themselves liable for significant additional damages.
Some commentators, including Lord Tyrie, have criticised the Competition Appeals Tribunal’s (CAT’s) ability to conduct a ‘full merits’ review of the CMA’s decisions on points of competition law under the Competition Act 1998; and have proposed limiting this to a judicial review standard similar to the approach in relation to appeals of CMA merger control decisions. The new consultation paper does not reveal which side of the debate the government has landed, stating that it is open to views, but it stresses that the argument for material change will need to be balanced against the rights of defence and procedural fairness. The government is also open to views on how to make the CAT process more efficient.
The government is proposing to amend the Competition Act to allow for extra-territorial effect of UK competition law. It is also looking at reducing the small agreements and minor significance exemptions for Competition Act cases so that it applies only to companies with a turnover not in excess of £10m.
Other proposals are aimed at enhancing the CMA interview and ‘seize and sift’ powers in the context of dawn raids; amending the interim measures and settlement regimes to allow for shorter more flexible processes and settlements in abuse of dominance cases without a requirement to admit involvement in an infringement; and the government is also seeking to encourage and simplify the use of voluntary redress and confidentiality rings.
Significant changes to enhance the CMA’s competition civil sanction regime are also outlined in the government’s consultation paper.
Currently the CMA is able to impose limited fines of up to a £30,000 fixed penalty or £15,000 daily penalty if a business fails to comply with a mandatory information request it has served it within the deadline for response. The government has now said it agrees that the size of penalty that can be imposed does not sufficiently incentivise compliance and can delay investigations.
Under its plans for reform, the government proposes that the CMA should be able to impose fixed penalties of up to 1% of a business’ annual turnover, as well as the power to impose an additional daily penalty of up to 5% of daily turnover while non-compliance continues. Penalties for individuals would remain capped at existing levels. The new civil sanctions will also apply to concealing, destroying or falsifying evidence or providing false or misleading information. In light of the detailed nature of CMA information requested and resources often required to respond, this poses a significant risk for companies and individuals involved in an investigation.
The government is also considering introducing similar personal liability for directors, while directors that provide false and misleading information could also find themselves disqualified from serving as a director of a company in the UK under the new proposals. Given the significant recent increase in the number of director disqualifications by the CMA for breaches of competition law, the CMA is likely to be serious about using these new powers and this could pose a significant risk for directors when responding to notices on behalf of the company.
The government is also considering expanding the circumstances in which civil sanctions can be imposed, including potentially where there has been a failure to comply with interim orders and commitments or undertakings signed by companies. Another proposal concerns the introduction of a new mechanism that would enable the CMA to reclaim penalty discounts it had awarded should the beneficiary of the discount fail to carry out a condition of the discount. Other reforms could include extending the CAT’s jurisdiction to grant declaratory relief and increasing the use of information gathering and sharing powers in relation to cooperation with international competition regulators.
The CMA currently uses procedural tools known as market studies and market investigations to assess the state of competition in various markets, make recommendations and impose remedies to improve levels of competition. However, completing both a market study, which can last up to 12 months, and a market investigation, which can last up to a further 24 months, is time consuming. The government consultation is considering a range of options aimed at streamlining the processes entailed in conducting such studies or investigations.
The government is seeking views on whether to replace the dual market study and market investigation regime with a single market inquiry tool that would last up to two years. The government previously considered taking this step but stepped back from introducing the change as part of previous reforms. A decline in the use of market investigations has led the government to reconsider its position.
Any change would need to be carefully balanced. Remedies such as structural divestments require careful consideration. A single two-year inquiry period would also remove the benefit of the ‘quick look’ market study regime which has been instrumental in shaping the CMA’s digital advertising and digital markets work.
Other proposed reforms include enabling the CMA to impose certain behavioural remedies after a market study rather than only after a full market investigation, as well as a new power to
impose ‘interim measures’ or accept commitments at any stage during a market investigation. The government is also looking at whether to provide the CMA with an ability to ‘market test’ its proposed remedies with businesses and otherwise revisit and amend existing remedies where they are seen as being ineffective.
One of the main criticisms of the market investigation regime is that it offers the CMA a ‘single bullet’ approach to remedies. If the remedies imposed are ineffective, the CMA would currently need to open a fresh investigation. Despite the government’s proposals for a ‘cooling off period’ between reviews, allowing more regular intervention across all markets would likely pose difficulties from both a resource and business certainty perspective.
The CMA is also currently tasked with monitoring and regulating UK merger activity. The UK’s current merger control regime is voluntary, but deals are subject to potential ‘call in’ where certain ‘turnover’ and ‘share of supply’ thresholds are met. The government’s consultation outlines a number of areas in which changes to the current regime could be introduced.
The CMA’s examination of proposed mergers and acquisitions can be burdensome for small businesses. To address this, the government is considering increasing the turnover threshold for target companies from £70 million to £100m. It also plans to introduce a safe harbour from the merger control regime for small companies where each of the merging parties’ turnover is less than £10m.
The government is proposing to add additional merger control thresholds to allow the CMA to more easily review so called ‘killer acquisitions’, where large companies acquire innovative start-ups and in so doing remove a potential new competitor. The new proposed thresholds – where either party has a 25% share of supply and £100m UK turnover – would pick up more acquisitions by large companies with strong market positions, regardless of the turnover or market presence of the target company.
The government is also considering allowing businesses to offer commitments to resolve competition concerns earlier during an in-depth ‘Phase II’ merger review. That plan differs from the proposals submitted by the Penrose Report which recommended that such a change be introduced for both the more limited Phase I investigation and Phase II reviews.
The government is also consulting on potential options to speed up Phase II reviews, which currently take between four and six months to complete. One option is to restrict the scope of Phase II reviews to only the issues raised by the CMA during its Phase I investigation. It is also considering making it easier to ‘fast track’ Phase II processes.
The government is also looking at ways in which to more closely align UK competition policy and the UK markets the CMA focuses its attention on with its broader ‘building back better’ strategy. The government is already able to issue a strategic direction to the CMA to shape its work. The proposals envisage more regular steers from the government on the focus of the CMA’s attention.
The CMA is also to be asked to provide explicit guidance as to how competition law can support the transition to a ‘net zero’ economy. The has previously issued sustainability guidelines, though some commentators believe they fall short of similar papers published by other international competition authorities.
The government is also keen to stress that this consultation complements its work to establish a pro-competition regime for digital markets and the introduction of the Digital Markets Unit, a specialist body within the CMA to regulate the future of digital markets. The government has launched a separate consultation on its proposals for its pro-competition regime in digital markets.
Both consultations run until 1 October 2021.
26 Jul 2021
UK government plans to revamp holiday pay calculation for part-year workers