Small businesses, franchisees and fuel retailers will soon be allowed to collectively negotiate

While competition law strictly prohibits competitors acting together or agreeing on prices, collective negotiation by small businesses, franchisees and fuel retailers has traditionally been considered beneficial as it can address significant imbalances in bargaining power, achieve cost savings and streamline negotiating processes.

Small businesses, franchisees and fuel retailers however have needed to seek authorisation or notification from the ACCC to engage in such conduct which has required them to demonstrate that the public benefits of collective negotiation outweigh any anti-competitive detriments.  The cost and burden of these regulatory processes may have previously precluded small businesses, franchisees and fuel retailers acting in concert when they may otherwise have wished to do so.

But this will soon change.

New class exemption to collectively negotiate

From early 2021, small businesses, franchisees and fuel retailers will be allowed to collectively negotiate terms and conditions including price with suppliers, processors, franchisors and fuel wholesalers.

The class exemption applies to any small business that has an aggregate turnover of less than $10 million in the previous financial year.  For franchisees and fuel retailers however there is no monetary threshold – any franchisee or fuel retailer can collectively negotiate with franchisors, fuel wholesalers etc.

In order to collectively negotiate, the representative of the relevant small businesses, franchisees or fuel retailers will simply need to provide a notice to the ACCC and the party with which they wish to collective negotiate. The collective negotiation conduct is then exempt and applies from 14 days prior to the lodgement of the notice (to exempt any pre-discussing between those parties).  The notice is placed on the ACCC’s public register.

How will the class exemption impact your business?

• The most significant point about the class exemption for suppliers, processors and fuel wholesalers is that the class exemption does not actually require them to negotiate with the group of businesses seeking to collectively negotiate.  Similarly, it does not require any small business, franchisee or fuel retailer to be part of a collective bargaining group which means many such parties may consider there are benefits in having individualised arrangements.
• 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.
• 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 however 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).
• Existing authorisations to engage in collective bargaining will not be affected by the class exemption but where such parties are eligible for the class exemption, they may seek to use it to continue the same conduct when the authorisation expires. Where parties are not eligible for the class exemption, the authorisation and notification processes will still be available to them.

What should you do now?

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

• Identify whether your business deals 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 a number of questions including:
  • 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? 
  • Will collective negotiation result in significant cost and time savings? 
  • 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?
• Consider the costs and benefits of locking in favourable terms and conditions individually with small businesses, franchisees or fuel retailers now and prior to the commencement of the class exemption.
• 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.

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.