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Office of Fair Trading urges HR to ensure directors are aware of potential competition law risks

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On 29 June 2010 the Office of Fair Trading (OFT) announced changes to its existing approach to seeking to disqualify directors for competition law infringements.

The OFT invites HR professionals to take steps to protect their staff from potential disqualification and, in doing so, protect their employer against future competition infringements (which can lead to fines of 10% of a company’s turnover and private actions for damages). It also offers HR professionals an opportunity to reflect on their compliance programmes, and further justify the importance of HR in the face of potential cuts or cost pressures.

Under the Company Directors Disqualification Act 1986 (CDDA), a director can be disqualified from acting as a director for up to 15 years if: 

 

  • that director’s company is involved in a breach of the UK or EU laws prohibiting anti-competitive agreements or the abuse of a dominant company of that market power; and
  • the court considers the director’s conduct makes him or her unfit to be concerned in the management of a company.

 

In the past, the OFT has primarily focused on directors personally involved in cartel activity. However, the new guidance makes clear that, in addition to considering whether the director’s conduct actively contributed to the breach, it will consider:

  • whether the director had reasonable grounds to suspect a breach but took no steps to prevent it; or
  • ought to have known about the breach.

 

Crucially, the OFT is likely to consider the general knowledge, skill and experience which should have been possessed by a person in his or her position. It goes on to state that every director of every company ought to know that price-fixing, market sharing and bid-rigging agreements are likely to breach competition law.

 

Despite the focus on the individual here, this development has important implications for HR policy. The OFT urges companies to give greater support for their employees, especially directors, to enable them to spot potential competition law risks and to empower them to take the necessary action.

 

The OFT wants to see the nurturing of ‘confident employees who know the rules of the game and can compete for business without fear of breaching competition law’. Directors should be made aware, and regularly reminded, of the importance of competition law – for example by means of ongoing training or a compliance programme. They should also feel fully supported in this endeavour.

In order to do this, competition law compliance needs to be prioritised in a number of ways.  For example, HR professions are encouraged to review their internal promotion and lateral hire criteria, to ensure that compliance with competition law is sufficiently prominent.  The OFT also wants to see bonus schemes and incentives to be linked to compliance activities and/or competition law training.

It is also important that funding for competition law compliance is set aside from and is not included in a team’s general legal costs, as this can dissuade people from raising concerns.

A real addition that HR professionals can bring to this issue is the fostering of a ‘culture of compliance’ that extends to competition law as well as perhaps more obvious areas of compliance such as health and safety or anti-corruption.  This may mean reviewing its employee communication model and inter-departmental relations. It is fundamental that the company maintains a good working relationship between its business teams and in-house legal advisors. In addition to being able to spot an issue, directors must know who to speak with internally.

The OFT is clear that compliance should be a cultural priority for companies and advocates a top-down approach, where those aspiring for promotion are encouraged by their seniors to improve their understanding of competition law. The OFT urges companies to make a management or board commitment, thereby creating a trickle down effect. HR professionals can also take steps to identify a company figure-head for promoting competition law compliance, while striving to win new business.

The OFT plans to provide further guidance on responsibilities of directors in the context of competition law. 

Suzanne Rab is counsel and Alex Olive an associate at Hogan Lovells