Individual liability for UK competition law infringements

The UK's Competition and Markets Authority (CMA) expects company directors to have a standard of skill and involvement that ensures that companies don't break competition law. Failure to meet that standard could lead to individuals being disqualified from acting as a director or being involved in the management of a company in the UK for up to 15 years.

All company directors must:

• ensure they do not have any personal involvement in infringements of competition law and must not actively encourage anti-competitive behaviour;
• take appropriate and reasonable steps to prevent, detect and stop any infringements of competition law.

The personal consequences where there has been an infringement of competition law for company directors can be severe and include disqualification and possible criminal sanctions.

While the CMA continues to impose increasingly heavy fines on businesses for infringing competition law, the prospect of a fine is not always a sufficient deterrent. The CMA is therefore also able to impose criminal sanctions as a more powerful incentive for individuals themselves not to engage in cartel behaviour, as well as a number of other measures to reinforce the responsibility of individuals for compliance. 

Competition disqualification orders

Where a company commits a breach of competition law and the director knew or ought to have known of the infringing behaviour, the CMA, or a UK sector regulator with concurrent competition powers, is likely to apply for a competition disqualification order (CDO).

This can disqualify someone from acting as a director for a period of up to 15 years. This applies to any serious infringement of competition law, not just for participation in hardcore cartels.

An application for a disqualification order may be made where the director's conduct contributed to the breach; the director had reasonable grounds to suspect that the conduct of the undertaking constituted the breach and the director took no steps to prevent it; and where the director did not know but ought to have known that the conduct of the undertaking constituted the breach.

The first such disqualification of a director occurred in 2017 in a price-fixing case relating to posters sold through Amazon Marketplace and the second in April 2018 against two directors of an estate agency. By July 2020, the CMA had secured 19 director disqualifications; across industry sectors involving online retail, construction, estate agents, and pharmaceuticals.  Further cases are pending. 

To date, the vast majority of director disqualifications have been secured by the CMA through legally enforceable undertakings given by a director rather than by court order. The first, and so far only, director disqualification case contested in court was decided in the CMA's favour in July 2020. The estate agency director was disqualified for seven years and ordered to pay £100,000 in legal costs.

The CMA is unlikely to apply for a CDO where the director is genuinely committed to compliance and has taken reasonable steps to ensure there is an effective company compliance culture. This includes asking appropriate questions and taking steps to bring to an end any infringements of competition law. Where a CDO is made it can lead to an individual’s disqualification for a maximum period of 15 years.

The CMA will assess the level of understanding of competition law that can be reasonably expected of a director, and the steps that it is reasonable to expect a director to take to prevent, detect or bring to an end infringements of competition law on a case-by-case basis. In doing so, the CMA will consider:

• whether the director has an executive or non-executive role;
• the director’s specific responsibilities;
• the size of the company and wider corporate group.

The CMA and concurrent sector regulators will continue to be able to rely on conduct found to have infringed EU competition law, in addition to UK competition law, before Brexit for the purposes of seeking director disqualifications.

Director disqualifications relating to conduct that occurs after 1 January 2021 will be based on the infringement of UK competition law only.

Cartel offence

The CMA has the power to pursue unlimited financial penalties and prison sentences of up to five years against individuals, although these must be imposed by a court. Companies and individuals may also be subject to confiscation orders.

Criminal sanctions apply only to those individuals who are involved in hardcore cartels, i.e. horizontal agreements between competitors to fix prices, share markets, limit production, and rig bids. The offence is committed regardless of whether the agreement in question is implemented or not.

Whilst the possibility of criminal prosecution has existed for a number of years, there are very few examples of successful prosecutions.

In 2017, the CMA secured its most recent conviction in the precast drainage products case. This is the third example of successful prosecutions in respect of the criminal cartel offence, in addition to the Marine Hose and Galvanised Steel Tanks cases, though all these cases involved guilty pleas and suspended prison sentences. The CMA is yet to secure the conviction of an individual who has not pleaded guilty. As each of the cases concerned arrangements which existed prior to April 2014, the offence involved a requirement to show that the defendants acted dishonestly. In practice, this presented a significant barrier to successful prosecutions.

The dishonesty requirement was removed with effect from 1 April 2014. In recognition of the loss of this requirement and in the light of the fact that the criminal regime is designed to cover 'hardcore' cartels only, a number of exclusions apply. These include an exclusion related to advance notification of the cartel agreement to customers and advance publication. Three new statutory defences were also introduced. These apply where there was no intention to conceal the arrangement from customers or the CMA or reasonable steps were taken to seek prior legal advice.

These reforms only apply to conduct after 1 April 2014. To date the CMA has not undertaken any new criminal investigations under the amended cartel offence, and has instead opted to pursue a policy of seeking director disqualifications in all cases where a serious breach of competition law has occurred.

Whistleblowers

Individual whistleblowers who report anti-competitive conduct to the CMA and European Commission are encouraged and may receive protection from personal liability provided they satisfy certain conditions, including admitting taking part in the cartel and cooperating completely and continuously throughout the investigation. The CMA offers financial rewards of up to £100,000, in exceptional circumstances, for information about cartel activity.

CMA’s expectations of all directors – adequate and up-to-date knowledge of competition law

The CMA considers that company directors have a special responsibility to be well-informed about their company's activities and to ensure they comply with competition law. A director is required to maintain a standard of skill and knowledge that is appropriate to their position and the nature of the company. A director is also expected to update and refresh their knowledge of competition law on an ongoing basis.

A director is expected to understand the most serious forms of infringement of competition law:

• cartels: a director ought to know that cartel activity, price-fixing and customer/market sharing between competitors are very serious infringements of competition law;
• other potentially anti-competitive agreements: any director, especially those with responsibility for commercial contracts, ought to have sufficient understanding of the principles of competition law to be able to recognise risks, and to realise when to make further enquiries or seek legal advice;
• a director should also understand the importance of taking appropriate steps to address any risks that have been identified;

Any director with responsibility for a company’s commercial strategy or behaviour is expected to be able to identify whether there is a risk that the company may have a dominant position in any of the markets in which it operates and to be aware of the need not to abuse that position.

Level of understanding specific to a director’s level of responsibility

Non-executive directors:

• not expected to have an intimate knowledge of the company’s day-today activities and transactions
• expected to challenge the decisions and actions of the executive directors;
• expected to ask appropriate questions of the company’s executives, to ensure appropriate compliance measures have been put in place to prevent, detect and stop infringements of competition law.

Executive directors:

• expected to have a more detailed understanding of, and familiarity with, the way in which a company operates on a day-to-day basis;
• those with responsibility for areas of a business with higher exposure to competition law risk, such as those with commercial responsibility for marketing, sales, brand management etc, should take greater steps to prevent, detect and bring to an end infringements of competition law.

Compliance directors:

• expected to have a sufficient grasp of the principles of competition law to identify and assess the types of risk to which the company is exposed, taking reasonable steps to mitigate those risks
• will usually have a greater level of knowledge of competition law principles than other directors;
• provided he/she has this knowledge, a compliance director is not expected to have any greater knowledge of specific infringements by the company than any other director.

Direct management responsibility

Those with direct management responsibility ought to have a greater awareness of any anti-competitive behaviour occurring as a result of conduct by individuals within their business area and, where personally involved in the day-to-day activities and transactions, a greater awareness in relation to those activities or transactions.

Be aware of the degree of staff exposure to competition law risk and especially of those involved in high risk activities such as regular dealings with competitors as trade associations, or involvement in pricing decisions. Ensure appropriate mitigating activities and procedures are put in place.

Indirect management responsibility

For those with overall responsibility for a business area, but not direct management responsibility, the CMA will consider what evidence was seen by the director and what evidence that director ought to have seen, having made reasonable enquiries.

The CMA will take into account whether the information would have been likely to come to light if appropriate compliance measures had been put in place.

Ask questions and make enquiries where certain events or activities by staff suggest the existence of a risk.

The company’s size

In all cases company directors are expected to demonstrate a commitment to competition law compliance, and to ensure that their organisation is taking steps to identify and to assess the company’s exposure to competition law risks and put in place appropriate steps to mitigate those risks, reviewing these activities on a regular basis.

Directors in smaller companies may have more intimate knowledge of the day-to-day activities of their company, and may therefore be more likely to be aware of actual or potential infringements of competition law.

Those in larger organisations may not have an intimate knowledge of all day-to-day activities and transactions. Nevertheless, the CMA expects directors in larger organisations to take steps to ensure that there are appropriate systems in place to prevent, detect and bring to an end infringements of competition law.

Protecting and preventing infringements – quick reference checklist

Risk identification

Identify the key competition compliance risks:

• what activities of the company are most likely to give rise to competition risk. For example, bidding, joint ventures, contacts with competitors;
• might the company be dominant in any markets?
• does the company regularly deal with or meet its competitors?
• does the company have long-term or exclusive supply or licensing agreements?

Risk assessment

Consider where the main competition risks arise:

• identify the staff most at risk of breaching competition law – staff attending trade association meetings or dealing with competitors, staff responsible for bidding, price-setting, or sales and marketing;
• identify new joiners from competitors.

Risk mitigation

• consider how best to achieve competition compliance within the company, focusing on the areas and staff that pose the highest risk of competition infringement;
• ensure there is tailored and relevant training for the high risk areas and staff and make sure to keep attendance registers;
• vary the intensity, level of detail and form of training according to the level of competition law risk that the employee presents – online training is sufficient for raising general awareness but face to face training is likely to be necessary for staff at higher risk of breaching competition law;
• ensure that employment contracts emphasise the need for competition compliance and include breaches of competition law as disciplinary matters;
• ensure that competition compliance policies and procedures are in place; for example, for reviewing contacts with competitors and attending trade associations, for reviewing other contracts and commercial practices, especially if a company might be dominant;
• consider means by which staff can raise competition concerns anonymously and confidentially, and seek legal advice;
• less formalised and less structured compliance efforts might be permissible for small businesses.

Review

• ensure that there is a clear and unambiguous commitment to competition compliance from the top down – i.e. the board and senior management team;
• refresh competition compliance training regularly, especially for new joiners;
• review regularly compliance procedures/policies to ensure they are working effectively and are still appropriate, especially if the nature of the business or market is changing and following acquisitions;
• ensure that appropriate lessons are learned from any competition investigations or “incidents”;
• maintain a risk register that includes competition issues or risks.