Competition ISSUES

CHAPTER 7

cOMPETITION ISSUES

Subject / Paragraph
A – INTRODUCTION / 1
B – SECONDARY BOYCOTTS / 5
Introduction / 5
Penalties / 9
Secondary boycotts engaged in for a market sharing purpose / 15
Restraint on competitors of secondary boycott target / 33
General obligation to report boycott activity? / 40
Appropriate regulator / 46
C – ANTI-COMPETIVE CONDUCT IN ENTERPRISE BARGAINING / 59
Introduction / 59
Discussion / 63
Conclusions / 72

A –INTRODUCTION

1.This Chapter examines a range of issues in relation to the Competition and Consumer Act 2010 (Cth). They arise out of the case studies considered in 2014 and 2015.

2.A number of case studies revealed possible anti-competitive conduct on the part of unions, and in particular the Construction, Forestry, Mining and Energy Union (CFMEU).

(a)The Boral case study, considered in Chapter 8.2 of Volume 2 of the Interim Report, disclosed possible secondary boycott and cartel conduct by the CFMEU in Victoria.

(b)The Universal Cranes case study, considered in Chapter 8.7 of Volume 2 of the Interim Report revealed instances of possible secondary boycott conduct by the CFMEU in Queensland.

(c)The CFMEU ACT case studies revealed instances in which the CFMEU placed pressure on contractors within the industry to set prices for the supply of services that conformed to the prices set by contractors with CFMEU enterprise agreements (EBAs) (prices which were set to accommodate the pay terms and conditions allowed for in those EBAs).Chapter 6.5 of Volume 3 of the Reportconsiders whether such conduct amounted to seeking an arrangement or understanding having the purpose or effect of fixing, controlling or maintaining the price for services in contravention of the cartel provisions of the Competition and Consumer Act 2010 (Cth).[1]

(d)The CFMEU ACT case studies also revealed instances of pattern EBAs containing provisions requiring employers to procure training for their employees provided by a particular training authority operated for the benefit of the union, or to obtain income protection insurance for employees with anparticular provider. Chapter 6.6 of Volume 3 of the Reportconsiders whether this conduct amounted to possible contraventions of the exclusive dealing provisions in s 47 of the Competition and Consumer Act 2010 (Cth).

(e)The Chiquita Mushrooms case study, which is dealt with in Chapter 10.6 of Volume 4 of the Report, revealed instances of AWU EBAs containing provisions limiting the procurement of contract labour by an employer to an identified provider, in circumstances in which the employer received advice that such a clause may contravene s 45E of what was then the Trade Practices Act1974 (Cth).

3.Many of thesecompetition law issues that have arisen have arisen in the context of the building and construction industry. However, competition laws are of general application. This Chapter takes the approach of considering the proper scope of the Competition and Consumer Act 2010 (Cth) as it relates to employment matters generally. Some of the recommendations, however, address particular problems in the building and construction industry by reference to the recommendations made in Chapter 8 of this Volume.

4.The balance of the Chapter is divided into two parts. Part B deals with a number of issues concerning secondary boycotts. Part C concerns anti-competitive conduct in relation to enterprise bargaining.

B –SECONDARY BOYCOTTS

Introduction

5.The Boral and Universal Cranes case studies considered in the Interim Report raise a number of issues concerning the scope and effectiveness of the current provisions preventing secondary boycotts and conduct that indirectly leads to a secondary boycott, being ss 45D and 45E of the Competition and Consumer Act 2010 (Cth) respectively.[2]

6.The terms and operation of ss 45D and 45E are considered fully in Chapter 8.2 of the Interim Report concerning Boral. Both ss 45D and 45E and their related provisions are excepted from the operation of the exclusion in s 51(2)(a) of the Competition and Consumer Act 2010 (Cth). That paragraph excludes contracts, arrangements or understandings relating to remuneration, conditions of employment, hours of work or working conditions of employees from the operation of the anti-competitive provisions of Part IV of the Competition and Consumer Act 2010 (Cth). The scope of this exclusion is considered further in section C below.

7.The Boral case study, in particular, demonstrated the ability of trade unions with significant member density across a particular industry to inflict substantial damage by disrupting the processes of distribution and supply to the target company, in contravention of ss 45D and 45E. It raised a number of issues,[3] which were canvassed in the Discussion Paper.[4]

(a)Do the existing penalties for contravention of the secondary boycott provisions provide an effective deterrent against the relevant conduct, particularly when compared with penalties for other contraventions of Part IV of the Competition and Consumer Act 2010 (Cth)?

(b)Should secondary boycotts undertaken for a market sharing purpose be explicitly outlawed as cartels?

(c)Should competitors of secondary boycott targets be precluded from dealings which take advantage of the boycott?

(d)Should competitors of a secondary boycott target, or other market participants, be required to report secondary boycott conduct?

(e)Is the ACCC the appropriate regulator for investigation and enforcement of secondary boycott contraventions involving trade unions?

8.No submissions have been received from any unions in relation to these issues. The submissions of the ACTU in relation to the Harper Review and the Productivity Commission have been considered. In the main, those submissions take the position that:

(a)Both ss 45D and 45E of the Competition and Consumer Act 2010 (Cth) are the products of flawed policy and should be repealed.

(b)If not, ss 45E, 45EA and 51(2)(a) of the Competition and Consumer Act 2010 (Cth) should be amended to exempt the ‘bargaining, making and approval of enterprise agreements or proposed enterprise agreements’.[5]

Penalties

9.Both the Boral and Universal Cranes case studies suggest that the existing penalties for contravention of ss 45D and 45E of the Competition and Consumer Act 2010 (Cth) are ineffective to deter conduct which has the potential to cause very substantial loss and has a substantial anti-competitive effect.

10.The maximum penalty is $750,000 in respect of a body corporate. Individuals are immune from pecuniary penalties in respect of contraventions of the secondary boycott provisions.[6]

11.In respect of other anti-competitive contraventions by bodies corporate, the maximum penalty is the greater of:[7]

(a)$10,000,000;

(b)if the Court can determine the value of the benefit that the body corporate has obtained that is reasonably attributable to the contravention – three times the value of that benefit; and

(c)if the Court cannot determine the value of that benefit – ten per cent of the annual turnover of the body corporate during the period (the turnover period ) of 12 months ending at the end of the month in which the contravention occurred.

12.The Competition Policy Review recommended that those penalties should apply equally to breaches of ss 45D and 45E of the Competition and Consumer Act 2010 (Cth), observing that there ‘no reason’ why the maximum breaches should be lower than those for other breaches of the competition law.[8] Submissions to the Commission by the Australian Competition and Consumer Commission (ACCC), Australian Industry Group, Master Builders Australia and the Australian Chamber of Commerce and Industry all supported this approach.[9] The ACCC observed that secondary boycott activity can have a significant anti-competitive impact on markets in a similar manner as contraventions of other Part IV provisions.[10]

13.The AustralianGovernment supported this recommendation in its response to the Competition Policy Review and is to draft legislation to increase the maximum penalties for breach of the secondary boycott provisions to the same levels as those applying to other breaches of the competition law.[11] The same recommendation in relation to ss 45E and 45EA has been noted, pending the outcome of the Productivity Commission Review of the Workplace Relations Framework.[12]

14.The conduct exhibited in the case studies considered by the Commission shows there is a real need for an effective deterrent against secondary boycott conduct. There is no principled reason why the penalties for contravention of the secondary boycott provisions should be less than those that apply to the other provisions in Part IV of the Competition and Consumer Act 2010 (Cth).

Recommendation 52

The Competition and Consumer Act 2010 (Cth) be amended so that the penalties for breaches of ss 45D, 45DB, 45E and 45EA are the same as those that apply to other provisions of Part IV of that Act.

Secondary boycotts engaged in for a market sharing purpose

15.The Interim Report considered the application of the cartel provisions of the Competition and Consumer Act 2010 (Cth) in respect of the CFMEU’s conduct concerning Boral and concluded that the CFMEU may have contravened those provisions.

16.Boral, however, submitted that the cartel provisions of the Competition and Consumer Act 2010 (Cth) should be clarified to remove any existing doubt that cartel conduct includes breaches of ss 45D and 45E of the Competition and Consumer Act 2010 (Cth) engaged in for the purpose of determining that a particular competitor or competitors will or will not supply a particular customer or customers, ie, cartel conduct would include secondary boycott conduct engaged in for a market sharing purpose.[13] These submissions are addressed in further detail below.

17.The operation of the current cartel provisions of the Competition and Consumer Act 2010 (Cth) is complex. The Competition Policy Review recommended substantial amendments to the current provisions. Those amendments specifically refer to market allocation conduct as being cartel conduct, although they do not specifically address the situation where the market allocation conduct is engaged in by a person who is not a competitor of the market participants. The overriding principle expressed in the Harper review, however, was that the cartel provisions should operate in respect of conduct between competitors.[14]

18.The Commission received a number of submissions on this topic.

19.The Australian Chamber of Commerce and Industry supported the inclusion of the secondary boycott prohibitions within the proscription of cartel conduct. However, it submitted, noting the complexity of the current provisions and the amendments recommended in the Competition Policy Review, that care should be taken in drafting the provisions to avoid the risk of unintended consequences.[15]

20.Master Builders Australia agreed in principle with such a proposal butsubmitted that the design of the prohibition must be carefully crafted to ensure that it does not affect those who are unknowingly involved in secondary boycott conduct.[16]

21.Boral referred to evidence before the Commission to the effect that the ban imposed by the CFMEU caused an understanding with Boral’s customers, firstly that they would not acquire concrete from Boral, and secondly that they would be allocated a particular class of suppliers, being CFMEU-approved suppliers.[17] Boral submitted that an understanding of this nature is sufficient to engage the cartel provisions in ss 44ZZRF and 44ZZRG of the Competition and Consumer Act 2010 (Cth). However, it said that to guard against uncertainties around the competition requirement in s44ZZRDof the Competition and Consumer Act 2010 (Cth), the definition of cartel conduct should expressly include conduct in contravention of ss 45D or 45Eof the Competition and Consumer Act 2010 (Cth), where that conduct can be shown to be for a market sharing purpose.[18] It argued that the relevant purpose would involve determining that particular competitors will or will not supply a particular customer or customers (and presumably vice versa).

22.Boral argued that the advantages of this extension are the increased penalties available, the ability to impose penalties on individuals, the possibility of criminal sanctions, the availability of additional investigative powers in respect of criminal conduct and the immunities available to parties which will encourage them to come forward.[19]

23.The ACCC observed that secondary boycott conduct does not generally involve contracts, arrangements and understandings between competitors, and hence that the conduct does not readily fit within the concept of a cartel.[20] It may be taken that the ACCC does not recommend an extension of the cartel conduct proscriptions to embrace secondary boycott conduct engaged in for a market purpose.

24.However, the ACCC discussed the recommendation in the Competition Policy Review that a concerted practice prohibition be introduced to s 45 of the Competition and Consumer Act 2010 (Cth) restricting concerted practices by persons with other persons that have the purpose, effect or likely effect of substantially lessening competition.[21] The Competition Policy Review recommended such a provision in the context of considering the existence and scope of price signalling prohibitions, but recommended a provision of more general application to replace those prohibitions.[22] It did not, however, recommend that the concerted practice provision be included within the cartel prohibitions, on the basis that criminal sanctions should be reserved for contracts, arrangements and understandings between competitors.[23]

25.The ACCC made a further submission in relation to the scope of ss45D, 45DA and 45DBof the Competition and Consumer Act 2010 (Cth), all of which provide for a dual purpose and effect/likely effect test for the conduct proscribed under those sections. An affected person must establish that the relevant conduct was ‘engaged in for the purpose, and would have or be likely to have the effect, of’ causing substantial loss and damage, causing substantial lessening of competition, or hindering trade and commerce between Australia and overseas. The ACCC submits that these provisions create a high threshold, whereasother provisions in Part IV of the Competition and Consumer Act 2010 (Cth) require a purpose or effect/likely effect test.[24]

26.Examining the question of whether secondary boycott conduct can be brought within the cartel positions is complicated by the recommendations of the Competition Policy Review. Substantial changes to the cartel provisions were recommended to simplify their language and also to incorporate the exclusionary provisions legislation to the extent that that is not incorporated in the existing cartel provisions in the Competition and Consumer Act 2010 (Cth).

27.The Australian Government, in its response to the Competition Policy Review, has supported the recommendations in respect of the cartel conduct provisions.[25] Exposure draft legislation is to be developed for consultation with the public and the states and territories. It is not clear from the Government’s response whether it adopts the preference in the Competition Policy Review that the proscriptions on cartel conduct are to be limited to conduct involving firms who are actual or likely competitors.

28.What is evident from the legislation proposed in the Competition Policy Review is that there is a requirement that each of the relevant cartel provisions in the legislation operate to affect the conduct of one party to the contract, arrangement or understanding by reference to a competitor, which must be a competitor of the first party.[26] The secondary boycott provisions do not fit readily into the definition of cartel conduct, under either the existing or the proposed versions of the legislation, if the intention is to catch only the arrangement or understanding between the union and the market participant. Moreover, it would appear to be contrary to the policy position reached by theCompetition Policy Review.

29.But for the reasons set out in Chapter 8.2 of the Interim Report, there is no reason why the cartel provisions would not apply to multi-party arrangements or understandings pursuant to which each of the competitor parties reached a consensus on the basis of communications with the instigator of the arrangement or understanding.[27] In particular, several of the proposed cartel provisions recommended by the Competition Policy Review concern matters such as restricting the output of supply or acquisition, or allocating supply and/or acquisition within a market, that would catch conduct of the type engaged in by the CFMEU in relation to the Boral dispute and in the Australian Capital Territory building industry, affecting as they did a number of potential customers for the supply of building materials and services.

30.For the purpose of ensuring that arrangements of that nature are caught by the cartel provisions, it is recommended that it be made explicit in the legislation that to prove the existence of an arrangement or understanding, it is not necessary to establish that there be communication between each of the parties to the arrangement or understanding, merely that they hold the same understanding. This is probably already the law, but an amendment would increase clarity. It would probably be necessary to make an amendment to the same effect in relation to s 45.

31.A provision mechanism of this kind makes it unnecessary to consider the alternative suggested by the ACCC concerning the proposed proscription on concerted conduct.

32.The final matter for consideration is the operation of the purpose and effect/likely effect test in s 45D(1)(b)of the Competition and Consumer Act 2010 (Cth). There does not appear to be any principled reason why the bar for contravention of that section should be higher. That is particularly so where there may be no real difference as a matter of practicality between whether conduct is undertaken for the relevant purpose and whether it is likely to have such an effect, as those questions are necessarily interrelated.[28] The same reasoning applies to ss 45DA and 45DB of the Competition and Consumer Act 2010 (Cth).

Recommendation 53

The Competition and Consumer Act 2010 (Cth) be amended to clarify that to prove the existence of an arrangement or understanding, it is not necessary to establish that there be communication between each of the parties to the arrangement or understanding, merely that they hold the same understanding.

Recommendation 54

Sections 45D(1)(b), 45DA(1)(b) and 45DB(1) of the Competition and Consumer Act 2010 (Cth) be amended to provide that those sectionsare contravened where the conduct is engaged in for the purpose, or would have or be likely to have the effect, of causing the consequence identified in those sections.

Restraint on competitors of secondary boycott target

33.In its submissions to the Commission, Boral argued that the current secondary boycott provisions were potentially defective in that there was no specific provision making it unlawful for the competitors of the ‘target’ of a secondary boycott knowingly to supply a product or service in substitute for a supply by the target. It supported an amendment to the Competition and Consumer Act 2010 (Cth) so that a competitor commits an offence if it engages in knowing supply. It says that a specific offence directed at this conduct will act as a better deterrent and create clarity and ease of prosecution, and ultimately operate to destroy the effectiveness of boycott activity.[29]