The class exemption for small business collective bargaining is now in play

On 3 June 2021, the much-anticipated class exemption for small businesses, franchisees and fuel retailers came into effect.

What is it again?

The class exemption allows any small business with an aggregate turnover of less than $10 million in the previous financial year to collectively negotiate the terms and conditions of acquisition including price with suppliers, processors, franchisors and fuel wholesalers.

Such conduct can be engaged in without contravening competition laws (which otherwise prohibit agreements between competitors to acquire at the same price) on the basis that the benefits of this conduct in addressing imbalances in bargaining power and achieving cost and time savings outweigh the anti-competitive detriments.

The monetary threshold does not apply to franchisees and fuel retailers.

Eligible negotiating groups can obtain immunity from competition law by submitting a basic form with the ACCC. Once lodged, immunity automatically commences and will remain in effect until 30 June 2030.  

The ACCC however can withdraw the class exemption from particular businesses if it forms the view that the collective bargaining conduct by those businesses substantially lessens competition and is not likely to result in overall public benefits. The class exemption is also not available to collective bargaining arrangements for which the ACCC has previously denied or revoked authorisation, or revoked a notification.

All completed notices will be published on the ACCC’s public register.   

For businesses that do not fall within the monetary thresholds applying to the class exemption, authorisation and notification of collective bargaining conduct is still available.

What does the class exemption mean for you when dealing with small businesses?

The class exemption is not compulsory, and does not require suppliers, processors or fuel wholesalers to negotiate with the group of small businesses if they do not wish to do so.  It also does not compel any small business, franchisee or fuel retailer to be a part of a collective bargaining group.

This means it is open to the supplier, processor or fuel wholesaler to negotiate individually with each of these parties and not enter any collective negotiation at all.  In essence, a “divide and conquer” strategy may reap more benefits than collective negotiation.

Of course, negotiating with the group may achieve cost and time savings and may streamline any negotiating process. Accordingly suppliers, processors and fuel wholesalers should weigh up these benefits against the risks of agreeing to less favourable terms across the board.

Importantly, the class exemption does not allow small businesses, franchisees or fuel retailers to boycott or threaten to boycott a corporation unless the corporation engages in collective negotiation. Suppliers, processors and fuel wholesalers should watch out for any such conduct, which will still be illegal under the law.

Similarly, small businesses, franchisees or fuel retailers are only exempt to the extent they are collectively negotiating terms and conditions with the other party. They are not exempt from sharing other commercially sensitive information (separate to the collective negotiation) such as their own acquisition prices or customer strategies. Suppliers, processors and fuel wholesalers should watch out for any such conduct (which will still be illegal under the law).

What should you do now?

You should undertake the following steps now in preparation for the new class exemption:

• Identify whether your business has any arrangements with small businesses (aggregate turnover < $10m), franchisees or fuel retailers.
• If so, ascertain how your business proposes to respond to any request to collectively negotiate.  This should be done by answering the following questions:
  • What are the costs and benefits to your business of collectively negotiating with those parties compared to negotiating with them individually?
  • Will collective negotiation result in less favourable prices or terms and conditions?
  • Will collective negotiation result in you losing the ability to provide differentiated pricing or terms to customers depending on their size, volume of supply/purchase etc?
  • What other benefits can be extracted from negotiating individually with small businesses, franchisees or fuel retailers?
  • Is there are any head or lead small business, franchisee or fuel retailer with which you could individually agree favourable prices or terms that would then act as a precedent for prices, terms and conditions to be individually or collectively negotiated with other small businesses, franchisees or fuel retailers?
• If you are uncertain as to whether a small business is eligible to collectively negotiate pursuant to the class exemption (i.e. you do not know if they fall under the $10m threshold), request clear evidence of their eligibility before entertaining any request to collectively negotiate. If they cannot provide sufficient proof seek legal advice about engaging with them in order to minimise any cartel risk.
• If you do collectively negotiate with small businesses and enter into a collective agreement, consider whether to include in that agreement a reporting obligation requiring each group member during the life of the contract to annually demonstrate that it falls under aggregate turnover threshold.  You may also seek to amend your contracts so small businesses are required report back to you with data that allows you to offer additional incentives and rebates to foster “internal competition” amongst them.
• If you think that a collective bargaining arrangement is anti-competitive and does not provide an overall public benefit, you should complain to the ACCC in order to have the class exemption withdrawn.

Regardless of the approach you take to any request for collective negotiation, you should train relevant staff to ensure they are understand the parameters of the conduct that small businesses, franchisees or fuel retailers can and cannot engage in.