Significant amendments to Canada’s Competition Act (the “Act”) are now law. The amendments can be broken down into five categories: (i) abuse of dominance, (ii) criminal cartel and competitor collaborations, (iii) marketing and consumer protection, (iv) merger review and (v) evidence gathering. All amendments are currently in effect with the exception of the new offence for wage-fixing and no-poach agreements and the increased penalties under the existing criminal cartel provisions of the Act, which will come into effect on June 23, 2023.
Three categories of these amendments are expected to expand the potential scope and nature of private competition litigation (including class action litigation) in Canada:
i. Wage-Fixing/No-Poach: the introduction of a new so-called wage fixing/no-poaching agreement offence;
ii. Drip Pricing: deeming “drip pricing” as a deceptive marketing practice; and
iii. Abuse of Dominance: the introduction of a private right of action for abuse of dominance, an expansion of the scope of conduct captured under the abuse of dominance provision and an increase in available financial penalties for a contravention of the abuse of dominance provision.
This blog post outlines these three categories of amendments and provides compliance tips for businesses operating in Canada in order to mitigate (and prevent) litigation risk.
I. Introduction of a New So-Called Wage Fixing/No-Poaching Agreement Offence
a. Overview of the New Offence
On June 23, 2023, the criminal conspiracy offences under the Act will include a new prohibition against so-called (i) “wage-fixing” agreements that “fix, maintain, decrease or control salaries, wages or terms and conditions of employment” and (ii) “no-poaching” agreements to “not solicit or hire employees” between unaffiliated employers.
As with the existing cartel provisions, this new provision would potentially allow wage-fixing and no-poaching agreements to be inferred from circumstantial evidence and would include both an ancillary restraints defence and a regulated conduct defence. This change is intended to align Canada’s approach to these types of agreements with the highly controversial approach adopted by the US Department of Justice (Antitrust Division).
These amendments do not appear to require that the employers be actual or potential competitors, which is unlike the framework that applies to the general conspiracy provisions in the Act.
b. Private Right of Action
Public enforcement exposure is significant since the amendments will increase available fines under the criminal cartel provisions from a maximum of $25 million to an amount “in the discretion of the court”. In addition, employers now face private enforcement exposure primarily in the form of class action litigation.
In particular, section 36(1) of the Act provides a statutory right of action for damages to any person who has suffered loss or damage as a result of conduct contrary to Part VI of the Act (i.e. criminal offences under the Act, including the new criminal wage fixing/no-poaching agreement offence). A court may order a remedy under section 36(1) of the Act if a person proves, on a balance of probabilities, loss or damage suffered as a result of conduct contrary to any provision of Part VI of the Act. Compensable loss or damage under the Act is limited to single damages—namely, an amount equal to the loss or damage proved to have been suffered by that person, and any additional amount that the court may allow, not exceeding the full cost to that person of any investigation in connection with the matter and of proceedings under section 36(1).
Historically, class actions alleging conduct contrary to Part VI of the Act have typically involved collusion allegations (e.g., price-fixing or bid-rigging) and, to a lesser extent, criminal deceptive marketing practices. The number of competition class action commenced in Canada has increased since the Supreme Court of Canada’s 2013 trilogy of decisions in Pro-Sys, Sun-Rype and Infineon, and its 2019 decision in Godfrey. The new wage-fixing/no-poaching agreement offence, which forms part of Part VI of the Act, is expected to be relied upon in new competition class actions commenced after June 23, 2023.
c. Compliance and Risk Mitigation
The following are compliance and risk mitigation tips that businesses operating in Canada can implement prior to June 2023:
- Review HR Practices and Expand Compliance Measures: Human resource (“HR”) practices should be reviewed to ensure that employers are not involved in (i) practices or conduct that may be considered wage-fixing or no-poach agreements/arrangements, or (ii) improper information sharing that may be perceived as facilitating such agreements/arrangements. We expect many businesses operating in Canada to already have robust competition/antitrust compliance measures in place vis-à-vis the general conspiracy offences in the Act. These compliance measures should now be expanded to include HR practices and professionals. Since this amendment will not take effect until June 23, 2023, the time necessary to engage in appropriate audit measures and develop best practices can be taken.
- Exercise Caution with Non-Solicit Clauses: Non-solicit clauses or other employee-related provisions in transaction agreements should have regard to the new wage-fixing/no-poaching prohibition. In particular, provisions that go beyond what may be typical in duration and scope should be considered closely to ensure they are directly related to, and reasonably necessary to achieve, the objective of the broader transaction agreement.
II. Deeming ‘Drip Pricing’ as a Deceptive Marketing Practice
The Act now includes an explicit provision deeming drip pricing as a false or misleading representation under the civil deceptive marketing practices and criminal false or misleading representations provisions in the Act. Specifically, offering a product or service at a price that is unattainable due to fixed obligatory charges or fees will be deemed to constitute a false or misleading representation, unless the obligatory charges or fees represent only an amount imposed by or under an Act of Parliament or the legislature of a province. In contrast to past drip pricing cases, including cases involving car rentals and online tickets, which were brought under the general false or misleading representations provisions of the Act, the amendment seeks to remove the Commissioner of Competition’s burden to prove that such representations are false and misleading.
In prior class actions, plaintiffs have also alleged drip pricing theories of harm and otherwise so-called deceptive fee disclosures in price advertising using other provisions of the Act. For example, in class actions involving baggage fee and online lodging, plaintiffs have relied on a more obscure provision of the Act, known as double ticketing (section 54). The legislative history of section 54 suggests that it was designed to prevent the display of two price tags on a single product rather than drip pricing, particularly in an online context.
The explicit provision deeming drip pricing as a harmful business practice under Part IV of the Act may be relied upon in new competition class actions alleging drip pricing theories of harm and so-called deceptive fee disclosures in price advertising. As discussed above, section 36(1) of the Act provides a statutory right of action for damages to any person who has suffered loss or damage as a result of conduct contrary to Part VI of the Act, including the criminal deceptive marketing provision in section 52 of the Act.
b. Compliance and Risk Mitigation
The following are compliance and risk mitigation tips for businesses operating in Canada having regard to this amendment becoming law:
- Headline Prices Should Reflect Mandatory Charges: Businesses that advertise prices, whether directly or indirectly through third parties, should ensure that headline prices reflect mandatory charges, and fully and clearly disclose all material information in an advertisement. In doing so, businesses should consider both the literal meaning of, and the general impression created by, an advertisement.
- Expand Compliance Measures: Businesses should ensure that employees that participate in advertising and marketing (particularly those that engage in pricing advertising) receive adequate compliance training.
III. Abuse of Dominance: New Private Right of Action, Expanded Scope of Conduct Captured and Increased Financial Penalties
Private parties are now permitted to seek leave to apply to Canada’s Competition Tribunal (the “Tribunal”) for a remedy arising from an alleged abuse of dominance. Prior to this amendment, only the Commissioner of Competition could seek a remedy before the Tribunal for abuse of dominance. In particular, private parties who are “substantially affected” by the alleged anticompetitive conduct of a dominant firm, if granted leave by the Tribunal, may now commence a private action before the Tribunal for an order under the abuse of dominance provisions.
This new private right of action should be considered with two further significant amendments to the abuse of dominance provisions of the Act, namely the expanded scope of conduct that may be captured by the abuse of dominance provision as well as the significantly higher financial exposure a respondent now faces if found to have contravened the abuse of dominance provision.
a. Expands Scope of Conduct Captured
Jurisprudence arising from the abuse of dominance provisions has historically found that an “anticompetitive act” is one that is intended to have a predatory, exclusionary or disciplinary negative effect on a competitor in a relevant market that the dominant firm substantially or completely controls, whether or not the competitor and dominant firm are in the same market. The amendments expand this definition of anticompetitive act to also capture conduct intended to “have an adverse effect on competition” or “a selective or discriminatory response to an actual or potential competitor”, including nascent competitors. Conduct that negatively affects non-price considerations are also explicitly captured, such as the effect of the practice on barriers to entry (including network effects), quality, choice and consumer privacy, as well as the nature and extent of change and innovation in the market.
b. Increased Financial Penalties
Available administrative monetary penalties (“AMPs”) have increased significantly from $10 million (for a first violation by a corporation) to up to three times the value of the benefit derived from the conduct or, if the value of such benefit cannot be reasonably determined, up to 3% of a party’s annual worldwide gross revenues. Oddly, it appears that this amendments would not allow the Tribunal to order that an AMP be paid to the private applicant in the event the Tribunal finds that the respondent abused its dominant position. Rather, the amendments maintain the status quo, which only allows the Tribunal to order the respondent to pay the AMP to the Canadian government.
Even if the Tribunal is precluded from ordering financial compensation to an applicant, there is nothing precluding a private settlement between an applicant and a respondent. For example, a private settlement could include an agreement that an applicant discontinue (or not commence) its private application in exchange for a monetary amount, among other things. In other words, there is nothing precluding parties from achieving a favourable settlement, directly or indirectly.
c. Compliance and Risk Mitigation
The following are compliance and risk mitigation tips for businesses operating in Canada having regard to these amendments becoming law:
- Closely Consider the Competitive Impact of Business Strategies: Businesses considered to have high market share in one or more relevant markets (generally but not necessarily as high as 50%) should closely consider the competitive impact of their business conduct (a broader competitive impact screen). This review is no longer limited to considering whether the conduct is intended to have a predatory, exclusionary or disciplinary negative effect on a competitor, but now extends to include a broader set of questions, including: (i) whether the conduct may have an adverse effect on competition (including in upstream and downstream markets); (ii) whether the conduct may be considered a selective or discriminatory response to an actual or potential competitor, including nascent competitors; (iii) whether the conduct impacts barriers to entry, including network effects; and (iv) whether the conduct affects non-price dimensions of competition, such as quality, choice and consumer privacy.
- Consider Consumer Privacy: How consumer privacy will feature in a competitive effects analysis for abuse of dominance remains unclear. It is also unclear what privacy objective(s) the Act can contribute that privacy law regulation cannot otherwise achieve. It may be that privacy is considered a dimension of quality over which firms compete and, if so, businesses should include this analytical lens when assessing their consumer privacy policies.
IV. Further Comments
The Bureau issued a news release on June 24, 2022, acknowledging the adoption of these amendments. The Bureau has also issued a short guidance document with respect to these amendments, has started offering public online information sessions discussing these amendments and, in the near future, is expected to publish updated guidance for businesses to further inform stakeholders about the amendments. Notably, the Bureau referred to these amendments as only a “preliminary phase in modernizing Canada’s competition regime”. More fundamental changes to the Act are be expected as the government continues its efforts to modernize and strengthen competition law in Canada.