Introduction to Commerce Act for HR professionals

Commerce Act 1986 has a purpose of promoting competition in markets for the long-term benefit of consumers within New Zealand. Commerce (Criminalisation of Cartels) Amendment Act 2019 came into full force on 8 April 2021, creating a new statutory regime under which criminal penalties may be imposed on individuals and business that deliberately engage in cartel conduct. 

What is cartel conduct? 

Illegal collusion, or cartel conduct, occurs when two or more businesses agree to coordinate their activities in orfder to increase profits and limit competition. This coordination can take various forms, including price-fixing, dividing up markets, bid rigging, or restricting the output of goods and services. 

The rationale 

In an ideal market, a great nummber of competitors operating independently will compete hard for their own businesses, which leads to best quality goods and services for the best price. This means that consumers will benefit, and efficient businesses will prosper.  

Cartels can cause significant harm to the markets and consumers by raising prices and/ or restricting supply. These actions can make certain goods and services inaccessible to some consumers and needlessly costly for others.  

The Commerce Act, or competition law, anti-monopoly laws or cartel laws are to protect and promote healthy competition between businesses. 

What the Commerce Act prohibits 

1. The merger regulation prohibits acquisitions of shares or assets if the acquisition has the effect or likely effect of substantially lessening competition in a market. (Section 47) 

Remedies and penalties for breach 

• The High Court can order an injunction preventing a proposed merger, or where a merger is already completed, an order that the merger be unwound  
• Individuals may be fined up to $500,000  
• Companies may be fined up to $5 million 

2. The Act prohibits misuse of market power (section 36) 

A business with a substantial degree of power must not engage in conduct that has the purpose, effect or likely effect of substantially lessening competition in a market. 

Remedies and penalties for breach 

• The High Court can order an injunction restraining the business from engaging in conduct in breach of section 36 
• Individuals may be fined up to $500,000 
• Companies may be fined $10 million or more 

3. The Act prohibits anticompetitive collusion – cartel conducts (section 27 & 30) 

Section 27 - two or more businesses must not enter into a contract, arrangement or understanding that has the purpose, effect or likely effect of substantially lessening competition. 

Section 30 – two or more competitors must not enter into a contract, arrangement or understanding that contains a “cartel provision – a provision in an agreement between competitors that has the purpose, effect or likely effect of: 

• Price-fixing 
• Restricting output 
• Market allocation 

Penalties for cartel conduct 

• Individuals may be fined up to $500,000 
• Companies may be fined $10 million or more  
• Since April 2021, individuals who have knowingly engaged in cartel conduct in New Zealand also face up to 7 years imprisonment 

The vital role of HR professionals 

HR professionals are responsible for ensuring compliance within the organisations, through workplace handbooks, policies and regular training for all employees. 

To avoid breaches of the Commerce Act: 

1. Invest in training and education. It is important to make sure all employees understand the regulations, and internal procedures for Commerce Act compliance. At a minimum, senior leadership team, and sales and marketing team should be educated, as they are the profiles that are likely to be in high-risk scenarios, I.e., employees sitting on the board of an industey association. 

Foster a culture of compliance. HR should communicate expectations )and consequences of incompliance) early, and actively encourage internal reporting of potential issues. 

1. Consider implementing a Commerce Act policy to promote organisation-wide awareness. A good policy communicates clear expectations and includes certain processes, especially ones to protect against high-risk scenarios. 

Managing potential instances of non-compliance 

The HR team is often involved in the handling of a suspected breach of the Commerce Act.  

1. Identify the concern. You may identify the issue themselves or may have the issue reported to you. Or the issue may be identified through an external audit, or as a result of a complaint to SLT, or a letter from the Commerce Commission. If issues are identified early on and recognised upfront as a potential breach, outcomes are likely to be better. 
2. Confirm whether your organisation has a Commerce Act policy and/or a whistleblower policy and refer to them for advised processes. 
3. Confidentiality is critical. If you are the first person to know, it is very important that you select the right person to speak to. Care is needed when launching an investigation. 
4. Obtain competition law advice for the organisation. Employees will also need independent specialist competition law as well as employment law advice. 

The Commerce Commission’s leniency programme 

This programme confers conditional immunity from prosecution bt the Commission and is available to the first member that reports a cartel. Applicant must cooperate with the Commission. It is a condition of leniency that you do not destroy any evidence. To minise the risk of tampering or destroying evidence, you must be very careful about how you raise issues about potential cartel conduction. 

Lane Neave Booklet - Criminal penalties for Anticompetitive collusion