Small businesses can find it hard to compete against larger businesses for a specific supplier or customer because they have less bargaining power. Collective bargaining occurs when multiple small businesses join together to negotiate with a big supplier. This can be beneficial, allowing a small business to:
- get noticed in a competitive market;
- negotiate terms that reflect the needs of the overall group, such as favourable time frames and payment plans; and
- reduce product distribution costs.
However, collective bargaining must first be approved by the Australian Competition and Consumer Commission (ACCC). In this article, we explain the four steps your small business must follow to engage in collective bargaining.
1. Form a Group
First, you must form a collective bargaining group (CBG). Your best option is to join with businesses which have similar goals. For example, you might form a group with businesses which are all negotiating with the same supplier.
Shared goals may exist between businesses in similar industries or of a similar size. Businesses can create the groups themselves, however, it is best to seek help from your industry representative or a lawyer, who can advise you on how it is best done.
Creating a CBG gives you the option to decide:
- who can join the group;
- how it will work; and
- which bigger business you plan to negotiate with.
Businesses of any structure can join a CBG, whether you are a:
- sole trader;
- partnership; or
The businesses in your group may even be your direct competitors, because it may make sense for you all to receive lower prices from a common supplier.
The appropriate number of businesses in a group will depend on your goals. For example, if you have too few businesses in your group, you may not get noticed in the market or have the power to negotiate terms that reflect your needs. If you have too many businesses in your group, you may find it hard to agree on your goals and the ACCC may reject the group due to its size.
2. Decide on Your Collective Goals
Once you form a CBG, start discussing your mutual goals and how you will go about achieving them. Many CBGs will establish a committee of decision makers, who have the responsibility to make decisions that reflect the broader goals of group members. You should agree on your goals in writing. These goals may be financial or commercial.
Collective bargaining is very common in the Australian milk industry. For example, seven suppliers to Pauls joined together in 2000 to form the CBG Premium Milk Ltd. Premium Milk’s goals for collective bargaining were to negotiate the supply, quality and pricing terms. Pauls also benefited, because it was able to deal with one representative group rather than many individual farmers.
3. Apply for Approval
To begin collective bargaining, you will need approval from the ACCC. It may take as little as a few weeks for your group to be approved.
You can lodge a ‘notification’ to the ACCC, where your group decides on one large corporation it plans to deal with. The legal protection you gain from lodging a notification will expire after three years.
Your other option is to apply for ‘authorisation’ from the ACCC. In this process, you request that the ACCC allows your group to have various small businesses that come and go. You also request that your CBG can bargain with multiple corporations, rather than just one.
The ACCC will assess whether your particular bargaining arrangement can proceed by weighing the public benefit against the drawbacks. Competition is a priority in a consumer society to ensure that a single company does not have a monopoly over the market.
4. Start Bargaining
Once you have ACCC approval, you can begin bargaining. A representative from your CBG may reach out to a large business such as a supplier or retailer and pose the idea of a mutually beneficial relationship. As part of that relationship, you can put supply agreements in place, open new market opportunities and streamline the process of manufacturing, supplying, and distributing. You can negotiate terms such as:
- standards of quality; or
- length of the contract.
CBGs are a great way for small businesses to propel themselves in their industry. There are four steps to engaging in collective bargaining:
- form a group;
- decide on your goals;
- apply for approval; and
- start bargaining.
The ACCC is generally happy to approve the formation of groups, so long as the bargaining benefits the public interest. If you need assistance to form a CBG and have it approved, contact LegalVision’s competition lawyers on 1300 544 755 or fill out the form on this page.
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