CMA Reports on Housebuilding and Labour markets

The CMA has had a characteristically busy start to 2024. In January 2024, the CMA’s Microeconomics Unit published its first research report into competition and market power in the UK labour markets (the “Labour Report”) to support wider policy thinking, and in late February 2024, it published its report on the housebuilding market in Great Britain (the “Housebuilding Report”).

Both publications identified the existence of potential “classic” competition law concerns in the respective markets. However, in a moment of welcome candour, the publications also point to the remit and limitations of the CMA’s influence and jurisdiction. The Labour Report identified non-competes of longer than 3 months as being potentially problematic and the Housebuilding Report identified that the root cause of the persistent under-delivery of new homes lay in the UK’s complex and unpredictable planning system, together with the limitations of speculative private development. However, in both cases, the CMA suggested that the Government was better placed to remedy this – in the case of the labour market, relief may come in the form of anticipated employment legislation; and in the case of housebuilding, introducing, inter alia, enhanced consumer protections and establishing a New Homes Ombudsman.

Nevertheless, both markets remain firmly in the cross-hairs of the CMA, with “classic” cartel investigations ongoing in both.

Labour Markets

An increased focus

Sarah Cardell (Chief Executive of the CMA) confirmed in a speech announcing the main findings of the Labour Report that tackling restriction of competition between companies in the labour market is one of the CMA’s priorities, as also set out in the most recent annual plans.

A summary of the key findings in the Labour Report is set out below:

• Labour market concentration in the UK is roughly the same as 20 years ago. The report found that the ratio between the number of workers and number of employers has remained largely consistent. NB labour market concentration measures how many employers operate in a particular market - the fewer firms, the more concentrated it is, providing an indicator of labour market power.

• Concentration varies according to region and industry. Labour markets outside of London and the Southeast are more concentrated, i.e. there are more employers per person in London and the Southeast. Concentrated labour markets have a very real impact - wages, on average, are 10% lower in the most concentrated markets, compared to the least.

• Hybrid working – the number of firms offering hybrid working has increased dramatically in recent years. Since the pandemic, the number of jobs offering remote and hybrid working has increased significantly and stabilised at around 20% of UK roles. Hybrid jobs are more common in geographical areas with lower concentration - such as London - and are associated with a rise in wages.

Cardell noted that “labour markets are an area in which competition authorities have traditionally been less active. We have generally focussed principally on competition in product markets. However, we have the power to take enforcement action against firms which break the law by fixing wages, just as we can act against firms which collude to fix prices”.

However, for whatever reason such practices have to date tended to slip under the CMA’s radar, they are likely to become much more of a focus for the CMA for the foreseeable future. The CMA’s interest in labour markets has been brewing for a while now – for instance, in February 2023, a short Guidance for employers on how to avoid breaking competition law through their activity on labour markets was published. The document highlights the main cartel-esque behaviours that employers should avoid in relation to HR practices, including no-poaching agreements, information sharing, and wage-fixing agreements.

Indeed, this seems to be something of a global trend - competition authorities around the world are increasingly focussing on similar employment practices (for instance, the European Commission investigation into no-poaching agreements between companies active in the online ordering and delivery of food, groceries and other consumer goods; and investigations into potential anticompetitive agreements in relation to the labour market in a wide range of sectors, including healthcare (Netherlands and Sweden), sports (Finland, Poland, Portugal, Poland, and Sweden), real estate (Lithuania), PVC and linoleum floor covering (France), freight forwarding (Spain)).

Non-competes a key focus of the Labour Report – but competition law is not the answer

Non-compete clauses prevent employees from working at a competitor for a set amount of time after their employment ends. The putative justification for such clauses is that, without these, hiring firms would be disincentivised from investing in training or client relationships for their workforce. The report found that such clauses impact around 30% of employees (and over 40% in ICT and professional and scientific services) and are prevalent across the UK economy, even in sectors where one would not expect firms to need to protect their intellectual property – for instance in retail, education, and food services.

One might, prima facie, consider that “non-competes” would be of particular concern to a competition authority (the clue is in the name…). However, according to Cardell: non-compete arrangements between an employer and an employee do not generally breach UK competition law: “They are typically a matter for employment law”.

The CMA’s proposed solution to the issue is that employment law and policy on non-compete clauses may need updating – and in this respect we note that there are plans by the Government to cap non-competes at three months set out in their Smarter Regulation document (published in May 2023). The government states that non-competes play an important role in protecting businesses who invest in their staff but introducing a cap would provide employees with more flexibility to join a competitor or start up a rival business after they have left a position which “will give up to 5 million UK workers greater freedom to switch jobs, apply their skills elsewhere and even earn a pay rise”. We are still awaiting draft legislation. The issue was not expressly included in the King’s Speech (5 November 2023), although there was a reference to making the UK economy more competitive. It does not seem to be a priority for the current government and we may not see progress on this before the General Election.

Ongoing wage-fixing and no-poach investigations

Regardless of any role on the part of the CMA as regards non-compete clauses, the CMA continues to investigate potential anti-competitive practices in the labour market:

• In July 2022, the CMA launched an investigation into suspected anticompetitive agreements in relation to the purchase of freelance services by companies involved in the production and broadcasting of sports content. The scope of the investigation – which is still ongoing - was then extended to suspected anticompetitive behaviours relating to the employment of staff for the same activities.

• Furthermore, last month, the CMA announced the extension of its cartel investigation in relation to the supply of fragrances and fragrance ingredients for use in the manufacture of household and personal care products. Its scope now includes suspected unlawful coordination by three additional undertakings, relating to reciprocal arrangements relating to the hiring or recruitment of certain employees (no-poaching agreements).

Housebuilding Market

The shortage of homes in the UK is a seemingly ever present theme in the news. According to the Housebuilding Report, the complex and unpredictable planning system, together with the limitations of speculative private development (whereby when builders obtain land, secure planning permission, and construct homes without knowing in advance who will buy them or for how much), is responsible for this. In addition, the study also found substantial concerns about estate management charges and with the quality of some new housing.

On the back of the Report, the CMA has made recommendations to the government, including requiring councils to adopt amenities on all new housing estates and enhanced consumer protection for homeowners on privately managed estates. It also recommended the creation of a New Homes Ombudsman and setting a mandatory code so homeowners can more easily pursue builders over quality issues.

Given the wider policy trade-offs and complexities inherent in the planning system, the CMA chose to set out proposed options for consideration, rather than specific recommendations, to tackle this including ensuring local authorities put in place local plans and have clear, consistent targets and streamlining the planning system.

However, the CMA decided not to start a deeper probe in the form of a market investigation reference into land banking and maintenance issues. In like manner with the limitation of competition law identified in the Labour Report, the CMA felt that government action would be more appropriate.

Information Sharing investigation

The outcome from the market study has been far from toothless however – the CMA found evidence during the study which indicated some housebuilders may be sharing commercially sensitive information with their competitors, which could be influencing the build-out of sites and the prices of new homes. While the CMA does not consider such sharing of information to be one of the main factors in the persistent under-delivery of homes, the CMA is concerned that it may weaken competition in the market and has accordingly opened a new Competition Act investigation into 8 housebuilders.