Entrepreneurs’ collective bargaining bad for competition

Albert Mäkelä, a specialist at Suomen Yrittäjät, considers solo entrepreneurs’ collective bargaining problematic in many ways.

In the autumn of 2022, the European Commission published guidelines in the area of competition law. Under the guidelines, EU competition law would not prohibit certain independent self-employed people from making collective agreements to improve their working conditions. On this basis, it has already been suggested that Finnish trade unions could represent self-employed people who single-person businesses and make collective agreements for them on their behalf.

“Legally speaking, what is peculiar here is that Finnish and EU competition regulation have not changed. The Commission’s guidelines are not legally binding. That means that agreements between companies that fix things like prices are still illegal,” Albert Mäkelä, a specialist at Suomen Yrittäjät, the Finnish SME association, writes in a blog post.

Mäkelä says that the guidelines only bind the Commission itself. He believes there is no certainty about what significance they would be given in court.

“Business owners’ collective agreements contain a significant legal risk both for the solo entrepreneurs and for their client companies.”

Over half of the business owners in Finland are solo entrepreneurs. Their numbers are expected to grow in the future. Mäkelä writes that the challenges faced by solo entrepreneurs have justifiably been discussed in public recently.

However, he does not think that any regulation exists on entrepreneurs’ collective agreement.

“By entrepreneurs’ collective agreements, what is potentially meant is agreements in which one party is a group of solo entrepreneurs, and the other party is one or more client companies buying their services.”

Mäkelä says that a collective agreement could cover the prices of services provided by solo entrepreneurs or other terms of service agreement. In that case, an individual entrepreneur would not need to agree on the price of their services separately with a client. A collective agreement would set the terms of an individual contract.

Mäkelä considers this problematic.

“When businesses agree with each other and prices, it’s a cartel. What is unclear is whom a collective agreement would bind and how. It’s also unclear what impacts a collective agreement could have on other entrepreneurs or companies operating in the same industry. However, what is clear is that collective bargaining would in practice limit competition. This is also the ultimate purpose of collective bargaining,” Mäkelä writes.

Mäkelä writes that under collective bargaining, competing on quality would be impossible.

“If the price is locked, it is also difficult to offer higher quality profitably. What’s more, the buyer would have no justification to pay a higher price than the one it is bound to buy the collective agreement.

“The impact on the functioning of the markets would be detrimental. Entrepreneurs would have no incentive to develop or do things better than competitors. Collective bargaining would lump entrepreneurs together into an indistinct mass and corrode the basic principles of the market economy,” Mäkelä writes.

Solutions must be sought elsewhere

Mäkelä thinks that a clearer way to improve the position of business owners in a weak bargaining position would be to directly regulate contractual terms.

“This could also be done individually for certain sectors. This would be equitable, nor would it differentiate entrepreneurs according to the type of business they run or whether they have employees.”

Mäkelä stresses that regulation already exists. It is found in the Act on Regulation of Contractual Terms between Entrepreneurs. It forbids unreasonable terms in such contracts. The Unfair Business Practices Act also protects a business owner against violations of good business practice or otherwise unsuitable practices.

“However, regulation ought to be developed to ensure the law matches small business owners’ current needs,” Mäkelä concludes.

Read Albert Mäkelä’s blog in full here.

Are you a Suomen Yrittäjät member yet? Read more about member benefits and advantages!