29 Oct 2020

Negotiating the new "class exemption" for collective bargaining

By Adrian Kuti, Lara Gauss

The ACCC's class exemption is likely to encourage collective bargaining across all industries where small business operators face difficult negotiations with large suppliers or large customers, but could possibly also be used by members of large corporate groups.

On 22 October 2020, the ACCC announced its decision to make its first ever collective bargaining class exemption since it was granted the power to do so in November 2017. Due to commence in early 2021, the class exemption will allow small businesses, franchisees and fuel retailers to collectively bargain with their suppliers, franchisors and fuel wholesalers, without having to seek ACCC approval for conduct which would otherwise breach the competition provisions of the CCA.

The collective bargaining class exemption could have significant implications for parties negotiating supply and other arrangements with small business counterparties and, in particular, for franchisors and fuel wholesalers negotiating with franchisees and retailers of any size.

What is a class exemption?

A class exemption is an exemption granted by the ACCC for specific types of business conduct that might otherwise be in breach of competition law. The ACCC has the power to make a class exemption if it is satisfied that the conduct that is subject to the exemption is unlikely to substantially lessen competition or is likely to result in a net public benefit.

This class exemption concerns collective bargaining by small businesses, franchisees and fuel retailers. Collective bargaining occurs where a group of businesses jointly negotiate common issues (eg. terms, conditions and/or prices) with their suppliers or customers. Such co-operation between competitors is strictly prohibited by the cartel conduct prohibitions and other competition provisions of the CCA and is currently only allowed with prior ACCC approval via an "authorisation" or "notification" process. The class exemption bypasses the need for covered entities to notify proposed collective bargaining conduct to the ACCC or to seek ACCC authorisation to engage in such conduct.

Who will benefit from the class exemption?

The class exemption will apply to three types of businesses:

  • Small businesses or independent contractors with an aggregated turnover of less than $10 million in the preceding financial year will be able to collectively bargain with suppliers or customers about the supply or acquisition of goods or services.
  • Franchisees (regardless of their aggregated turnover) will be able to collectively bargain with their franchisors.
  • Fuel retailers (regardless of their aggregated turnover) will be able to collectively bargain with their fuel wholesalers.

When will the class exemption come into action and how will it work?

The class exemption is due to commence in early 2021, after the period for parliamentary disallowance has expired. From then on, businesses will be able to form collective bargaining groups by filling out and lodging a simple one page ACCC form. Lodgement of the form will be free of charge and legal protection from competition laws will commence automatically upon lodgement.

Businesses will not be required to form or join a collective bargaining group if they don't want to. The class exemption simply operates as a tool that enables collective bargaining without the need to worry about potential competition law breaches. Likewise, the other party involved (eg. the respective supplier, customer, franchisor or fuel wholesaler) will not be required to deal with the bargaining group and will still be able to negotiate with each member of the group individually.

The class exemption's impact going beyond small businesses

The class exemption is likely to encourage collective bargaining across all industries where small business operators face difficult negotiations with large suppliers or large customers because it:

  • allows the individual members of the bargaining group to share the time and cost of negotiations; and
  • gives group members more leverage in relation to specific contract terms and conditions generally dictated by the large supplier/customer counterparties.

In short, the class exemption will give significantly greater bargaining power to small businesses turning over less than $10 million in annual revenue and provide those small businesses with a counterbalance to the existing bargaining strengths of the large, often multinational, suppliers and/or customers with which they must deal.

However, the class exemption will also bring these same windfalls to franchisees and fuel retailers of any size. While, in many cases, franchisees and fuel retailers either meet the small business turnover threshold or otherwise face very similar power imbalances vis-à-vis franchisors/wholesalers as are generally met by small businesses dealing with large suppliers/customers, there are also many examples of franchisees in particular industries which will benefit from the class exemption despite already being members of large corporate groups in their own rights.

By way of example, the Franchising Code of Conduct deems all motor vehicle dealership agreements to be franchise agreements such that all dealers, even those which are members of large corporate groups with interests in multiple dealers across multiple brands and in multiple locations, are deemed to be franchisees and will thus be empowered to collectively bargain with other corporate groups who are similarly deemed to be franchisees under the Franchising Code.

The Australian Automotive Dealers Association welcomed the ACCC's decision immediately, with AADA CEO James Voortman commenting:

“Franchised new car Dealers have huge trouble negotiating with their large offshore multinational franchisors, given the substantial differences in size and power of the parties involved. This is made even worse when individual Dealers have to try and negotiate alone. This class exemption provides Dealers with a much more effective and efficient negotiation tool and avoids Dealers having to navigate through complex red tape and administrative burdens to obtain collective bargaining rights"

No doubt, the manufacturers and importers of vehicles with whom the dealer groups negotiate and who supply the vehicles to the dealer groups have a very different perspective. While there would certainly be examples of terms effectively imposed on dealers by manufacturers/importers, there would likely be many other examples of difficulties faced by manufacturers/importers in negotiating terms with larger dealer groups. Time will tell whether the larger dealer groups will take advantage of the class exemption beyond the purposes for which the ACCC has envisaged it to enhance competition and it may well be that the ACCC revisits the scope of the exemption once it has had an opportunity to observe it operating in practice.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.