Improving Awareness of Competition Law for SMEs

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The confusion surrounding competition law has been a cause for concern for some time. Many SME owners and managers do not understand how competition law applies to their businesses and may be under the impression that this is something only much larger operations need to worry about.

In reality, all businesses need to be aware of their obligations to avoid anti-competitive behaviour and what this means in practice. Failing to get this right can result in serious penalties, including substantial fines, director disqualification and even criminal prosecution of company directors.

In this article, we cover what competition law is, what are considered anti-competitive practices, how this applies to SMEs, the penalties for non-compliance, resources for understanding UK competition law and how the Longmores team can help businesses with their compliance obligations.

Need help with UK competition law or any other company and commercial legal matters? Please contact Michael Budd who will be happy to advise.

Key points to know about UK competition law

  • Competition law applies to all UK businesses, no matter their size
  • Anti-competitive practices can include agreements between businesses that interfere with normal competition as well as where businesses abuse a dominant market position
  • SMEs should be particularly wary of anti-competitive agreements, whether formal or informal
  • There are serious potential penalties for breaching competition law, including significant fines, director disqualification and even prison sentences
  • The government offers a number of resources to help businesses understand their compliance obligations
  • Businesses should seek expert legal advice so they can be confident they are in compliance

What is competition law?

Competition law is intended to prevent businesses from engaging in anti-competitive practices and thus promote healthy competition between businesses.

In the UK, this is covered by the Competition Act 1998 and is enforced by the Competition Markets Authority (CMA).

What are anti-competitive practices?

Broadly, anti-competitive practices fall into two categories:

  1. Anti-competitive agreements
  2. Abuse of a dominant market position

Anti-competitive agreements refer to any agreements between rival businesses or business practices intended to prevent, restrict or otherwise interfere with competition between businesses. Examples might include competitors agreeing to match each other’s prices or to divide up customers between them. These agreements could be formal (in writing) or informal (unwritten).

Abuse of a dominant market position is where a business has a large market share (usually considered to be in excess of 40%) and is considered to be exploiting this to behave in a non-competitive manner. Examples of this may include charging unfair prices, requiring customers to agree to unfair trading conditions and intentionally limiting production.

How does competition law apply to SMEs?

While SMEs may have a dominant position in more niche markets, the issue of anti-competitive agreements is likely to be more relevant in most cases. Unfortunately, this is an issue around which many SMEs are worryingly ignorant.

According to government research, in the East of England, more than two-thirds (69%) of respondents did not know that it was unlawful to set the price for re-selling a product and almost half (44%) didn’t realise that price-fixing was illegal.

SMEs should be particularly wary of involvement in anti-competition cartels, where businesses agree not to compete with each other. While business owners and managers might think it is reasonable to reach a ‘friendly agreement’ with a competitor not to ‘step on each other’s toes’, this is considered anti-competitive behaviour and, in some cases, could result in criminal prosecution if discovered.

It is highly recommended that SMEs seek expert legal advice if they have any concerns about anti-competitive behaviour.

Penalties for non-compliance with UK competition laws

Engaging in anti-competitive behaviour could result in criminal prosecution and the consequences can be very serious, both for businesses and their directors.

Businesses could be fined up to 10% of their annual turnover while company directors can potentially be disqualified from acting as a director for up to 15 years. Where people are found to be involved in a cartel, they could be sentenced to up to 5 years imprisonment.

This should, hopefully, highlight just how seriously the UK takes anti-competitive practices and how important it is for businesses to comply with competition law.

Resources for understanding UK competition law

To improve understanding of these issues, the Competition and Markets Authority (CMA) has produced a number of resources in an effort to improve understanding of competition law and raise awareness of how anti-competitive activity can impact businesses.

These include:

Among the main aims of the campaign are to make businesses aware of the possibility that their competitors or suppliers may be breaking the law and advising on steps to prevent staff at their own operation acting unlawfully.

While the majority of small businesses are against anti-competitive practices and want to act in accordance with the law, their limited knowledge can pose real problems. The right advice and guidance can, therefore, be essential.

How Longmores can help with UK competition law

If you are unsure of whether your commercial arrangements comply with competition laws, then do seek legal advice. This is particularly important, as the penalties for breaching competition laws can be prohibitive, with businesses in extreme cases being fined up to 10% of their annual worldwide turnover.

Our Company Commercial team can help you with information and queries about competition laws, as well as assisting with all other aspects of company and commercial law.

To discuss how we can help you, please contact Michael Budd who will be happy to advise.

Please note, the contents of this blog are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.