Competition law: what’s new?
Regulations introducing personal liability of management board members - how to prepare for entry into force of new of regulations?
Legal alert (10/2014)
On 18 January 2015, significant changes will come into effect regarding increased liability for competition restricting agreements (including the entitlement to impose fines). Therefore it is worth to commence measures preventing from or at least reducing the risk of breaching the competition protection law and thus penalizing the business as a whole and directly managers with high fines.
On 18 January 2015, significant changes will come into effect regarding increased liability for competition restricting agreements (including the ability to impose fines on management members up to PLN 2 million). Many managers ask themselves whether their companies may commence measures preventing from or at least reducing the risk of breaching the competition protection law and thus penalizing the business as a whole and directly managers with high fines.
At this moment, it is difficult to assess in which cases the President of Office for Competition and Consumer Protection may consider specific acts or omissions of management board members to be intentional as to justify holding the management board members personally liable for the fact of competition restricting arrangement. Among others the following doubts arise:
- Whether in each case both the purpose and the effects of the anti-competitive practice shall be covered by the intention of the management board member – for the behavior of the manager to be considered intentional, or is it only sufficient that the manger decides to conclude particular agreement or to introduce specific contents into the agreement.
- Is the requirement limited to the cause, i.e. the concluding of an arrangement or including certain contents into it?
- In which cases an omission in verification of contents of an agreement prepared by employees or other business arrangements made by them shall be considered intentional?
Nevertheless, the following measures shall remain crucial from the perspective of compliance in the area of competition law and mitigation of related risks:
- Providing relevant trainings for the staff in order to prepare the staff involved for ”high risk” cases (such as business relations with competitors, modifications of a distribution model);
- Monitoring trade arrangements concluded with other entities from the particular industry;
- Verifying key legal documentation from the perspective of potential anti-competitive clauses included prior to execution.
The impact of new regulations on existing agreements and practices
Quite often, however, business and financial approach prevails the legal and regulatory approach and the entrepreneurs may remain unaware that the agreement which has been just negotiated and is under performance is based on arrangements constituting a breach of competition protection regulations.
Therefore, an analysis is recommended what may be the impact of pending regulations on potentially existing and operating unacceptable arrangements and practices. For this purpose, the interim provisions should be verified in order to answer the question whether the new more restrictive regulations shall apply in each case of anti-competitive arrangement being identified after the effective date of the amended provisions.
Firstly, pursuant to Article 6 of the amending act, a manager shall be held liable under the amended provisions of the Act on Competition and Consumer Protection for acts and omissions performed after the effective date of the amending act. This means that effective discontinuance of illegal practices before 18 January 2015 shall be sufficient for the managers to avoid personal liability even if these practices are subsequently detected by competition protection authorities.
Secondly, pursuant to Article 5 of the amending act, practices restricting competition discontinued prior to 18 January 2015 shall be subject to the so-far regulations determining the “statute of limitations” (a shorter, one-year period allowing for commencement of the antimonopoly proceedings with regard to practices restricting competition as compared to the five-year period applicable to practices continued after 18 January 2015).
How to prepare for changes?
Identification of risk areas and detailed legal audit
At least for the above mentioned reasons, the companies should consider to improve a legal comfort of a managing staff by arranging a legal review of compliance level in the areas most sensitive from the perspective of competition law prior to the effective date of the new regulations in order to eliminate potential illegal behavior before that date.
Such competition law sensitive areas (or a substantial portion thereof) may be identified based on a custom-made, dedicated legal questionnaire which, once filled out by employees, shall enable an experienced advisor to identify documents that require in-depth legal analysis (e.g. documents regarding relations with entities that offer competitive products or services; representative agreements comprising the rules of cooperation with entities from other levels of trade in the areas (markets) where an undertaking or its business partner hold a market position resulting in a significant risk of negative impact on other market participants; documents comprising a non-competition provisions arising from concluded M&A transactions).
Verifying internal control procedures
Another item to be considered by the managers already at present moment is to check whether the company has introduced relevant internal procedures, which - on the one hand - provide a formal framework for internal control over the most sensitive risk areas (e.g. how to record arrangements made within industry professional organizations or requirement for internal preapprovals for any business arrangements with competitors), and on the other – enabling the management board members to demonstrate due care in preventing the occurrence of illegal practices in the managed undertaking.
Detailed scope of responsibilities
Additionally, it appears reasonable to verify how precisely the employees’ responsibilities related to compliance and supervision over compliance with competition laws have been defined. It would enable to avoid any doubts as to which employees and to what extent are personally liable in the event of occurrence of an anti-competitive practice that would expose the company to severe penalties and liability for damages.