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Media Briefing Note: Construction Recruitment Agencies Appeal to Competition Appeal Tribunal

28 July 2010

LONDON, 28 July 2010 - The Competition Appeal Tribunal ("CAT") is expected to deliver its judgment this week in an appeal brought by recruitment companies against the Office of Fair Trading ("OFT") decision in September 2009 to impose fines of £39 million on six recruitment agencies for price fixing and the collective boycott of another company in the supply of candidates to the construction industry.

The hearings have been listed for the week beginning 26 July 2010 and are to last 3-4 days.

 

Although the grounds of appeal differ as between the appellants, a unifying theme is the claim that the level of fine imposed by the OFT was excessive and disproportionate.

 

Background

Three parties have appealed against the fines imposed by the OFT in its original decision which found that eight recruitment agencies in the construction industry had been involved in fixing fee rates and had agreed to boycott another company. 

 

Appeals against the fines have been brought by:

 

·                     Eden Brown:  A fine of £1.07 million (including a 35% leniency reduction) was imposed by the OFT.

·                     CDI AndersElite and CDI Corp:  The parties were made jointly and severally liable for a fine of £7.6 million (including a 35% leniency reduction).

·                     Hays plc, Hays Specialist Recruitment Limited and Hays Specialist Recruitment (Holdings) Limited:  A fine of £30.4 million was imposed on the Hays companies (including a 30% leniency reduction).

 

All companies are appealing against the level of fine on a variety of grounds, including that:

·                     the fine was excessive and disproportionate;

·                     the starting point was too high;

·                     the OFT had erred in its calculation of relevant turnover;

·                     a 10% increase in the fine due to the involvement of a senior manager in the infringement is unjustified.

 

 

Significance of the appeal

 

The OFT's original decision represents a further sign of the OFT's unrelenting enforcement of its policy to deter and sanction cartels.  The outcome of the appeals will be instructive to companies and their advisers when weighing up their options in terms of whether to seek leniency at the OFT stage and the scope to challenge fines before the CAT.

 

·                     Leniency:  Although the level of fines in this case is relatively small in absolute terms (the highest being about £30 million on one company, Hays) this is largely a factor of the size of the companies involved and the fact that reductions were granted under the leniency programme.  The OFT has said that most of the companies fined were given discounts on leniency grounds and two were granted complete immunity.  By coming forward to provide information to expose a cartel and assist the authorities, a company can reduce or even avoid punishment (although it remains at risk of claims for third party damages) and the OFT obviously wants to encourage this.  However, a question remains as to the scope for reopening financial penalties where reductions have already been granted on leniency grounds.

·                     Nature of breach:  The breaches were considered serious by the OFT as reflected in the OFT press statement at the time.  Whether the CAT considers that a more moderate fine should have been imposed to take account of the strength of the evidence of actual consumer detriment or the extent to which the companies themselves benefited, remains to be seen.

·                     Economic climate:  One ground of appeal is that the fine was too high to secure deterrence.  In this case, the OFT was sensitive to the prevailing economic climate when setting the level of the fine.  While it is acknowledged that fines must have a deterrent effect, this may result in long-term harm to competition if the fine undermines the viability of the company.  The CAT will be sensitive to the need for flexibility in a challenging economic climate but the question before it is whether, notwithstanding the reductions granted, the fines were still too high.

 

Hogan Lovells’ Antitrust, Competition and Economic Regulation practice are available to provide legal background on the judgment and its consequences.  Please contact:

 

John Pheasant

Partner in Hogan Lovells' Antitrust, Competition and Economic Regulation (London)

Tel: +44 207 296 2646

john.pheasant@hoganlovells.com

 

Suzanne Rab

Counsel in Hogan Lovells' Antitrust, Competition and Economic Regulation (London)

Tel: +44 207 296 2382

suzanne.rab@hoganlovells.com

 
 
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