Avoid breaking competition law

Competition law applies to businesses of any size. Two prohibitions in the Competition Act 1998 matter most: Chapter I bans anti-competitive agreements between businesses, and Chapter II bans abuse of a dominant position. The Competition and Markets Authority (CMA) enforces both.

What you must not agree or share with competitors

Chapter I catches agreements, decisions by trade associations and concerted practices that prevent, restrict or distort competition in the UK. An agreement does not have to be in writing. An informal chat, a 'gentleman's agreement', is enough, even if nobody carries it out.

In practice you break the law if you agree with a competitor:

• to charge the same prices or the same fees to intermediaries, or to raise prices or offer discounts at the same time
• how much to bid for a contract, to take turns to win contracts, to submit a cover bid, or not to bid at all
• not to approach each other's customers or compete in particular places

You also break it if you share information that reduces competition between you, such as prices, production, suppliers, customers or the markets you plan to enter. Passing it through a third party, such as a trade association, does not change that.

Take care with resellers and exclusive deals

Restricting how much other businesses can sell your product for can break competition law, and so can long-term exclusive contracts with customers or suppliers. Buying or selling jointly with a competitor, or agreeing with competitors to cut production or not to deal with certain customers or suppliers, can too. Take legal advice before you do any of these. You may qualify for free advice from the Competition Pro Bono Scheme.

Check whether you hold a dominant position

You may be dominant in a market if you have more than a 40% share of it and normal competitive pressures do not restrain you. Dominance does not break the law. Abusing it does, and no agreement is needed, because Chapter II covers what you do alone.

Examples of abuse include treating similar customers differently on price or terms, making customers buy products they do not want, such as forcing them to take a warranty, and pricing below cost to drive out competitors. If you think you might be dominant, take legal advice before you change how you price, bundle or supply.

Work out where your risk lies

You are more likely to be at risk if:

• you or your staff meet competitors, for example at conferences or trade association meetings
• staff regularly move to or from competitors
• you buy or sell jointly with competitors
• you have long-term exclusive contracts with customers or suppliers
• you are dominant in any market where you trade

The people who run the business are responsible for keeping it within the law, and a penalty can fall on the business even if senior managers did not know about the conduct. Where there is a risk, set clear policies and guidelines, train the staff concerned and give a senior person, such as a director, the job of making sure staff know how to avoid and report anti-competitive behaviour.

Know the penalties

Anyone harmed by an infringement can sue for damages. An agreement that breaches Chapter I is void. Smaller businesses are immune from fines in some cases, as the summaries above show. That immunity never covers price fixing, the CMA can withdraw it, and it covers fines only, so the conduct is still unlawful.

Directors face personal consequences. The court must disqualify a director, on an application from the CMA or a regulator, if the company breaches competition law and the director's conduct makes them unfit to manage a company. It looks at whether the director contributed to the breach, had reasonable grounds to suspect it and did nothing to stop it, or ought to have known about it.