Canadian Competition Act Reform: First Round of Significant Amendments

May 05, 2022

Written By Beth Riley, Alysha Pannu, Christina Skinner, Randy Hughes, Melanie Aitken and Emrys Davis

On April 26, 2022, the Government of Canada announced proposed amendments to the Competition Act as part of the Budget Implementation Act, 2022. These proposed amendments are likely the first step in the Federal Government's announced plan to conduct a comprehensive reform of the Competition Act to improve its effectiveness in promoting dynamic and fair markets, especially in light of the challenges of the modern economy.¹

The proposed amendments would greatly expand the scope of the Competition Act, a move that is in line with the global trend towards stricter penalties and enhanced enforcement of competition/antitrust laws. The amendments in part reflect stated efforts to meet the demands of the modern, digital economy and to strengthen the enforcement of the Competition Act. So far, the proposed amendments do not address all of the concerns identified by the Government, the Competition Bureau and stakeholders, and we expect additional reviews, consultations and amendments to the Competition Act.

The following is a summary of the key proposed amendments to the Competition Act.

Summary of Key Proposed Amendments

No-Poach and Wage-Fixing Agreements by Employers Criminalized

Unlike U.S. antitrust laws, the Canadian criminal conspiracy provisions do not prohibit buy-side arrangements among firms, including agreements between unaffiliated employers vis-à-vis the treatment of employees. Rather, these buy-side agreements are currently reviewed under the civil reviewable provisions of the Competition Act; a breach of these provisions requires evidence of a substantial lessening or prevention of competition.

The proposed amendments would make no-poach and wage-fixing agreements between unaffiliated employers per se criminal offences, but would not criminalize other buy-side agreements, which would continue to be reviewed under the civil reviewable provisions of the Competition Act. No-poach agreements are agreements between employers to not solicit or hire each other's employees. Wage-fixing agreements are agreements between employers to fix, maintain, decrease or control salaries, wages or other terms and conditions of employment. Significantly, these agreements are presumed to be harmful to competition and hence would be per se criminal offences, such that the prosecution would not need to establish harm to competition to obtain a conviction, and the intent of the employers—for example, to lower costs or achieve efficiencies—would be no defence. Examples of conduct that have raised concerns under similar U.S. criminal provisions include: agreements between companies to not "cold call" or hire each other's current employees, and agreements to boycott a registry of professionals so as to eliminate competition among purchasers of those professional services.

Moreover, like the existing criminal conspiracy provisions, the courts would be able to infer no-poach and wage-fixing agreements from circumstantial evidence, with or without direct evidence of communication between the employers. For example, the sharing of competitively sensitive information regarding employees among employers may raise concerns under the proposed amendments. To the extent employers wish to exchange competitively sensitive information for legitimate purposes (i.e., as part of a merger transaction), parties should ensure proper protocols are implemented to protect such information and to avoid claims of criminal buy-side conspiracy. Unlike the existing conspiracy provisions that relate to supply-side agreements (such as the sale or supply of products), no-poach and wage-fixing agreements would not need to be entered into between competitors or potential competitors.

The amendments include two defences to convictions of criminal buy-side agreements between employers: (i) the ancillary restraints defence, where the agreement is ancillary to a broader agreement (such as a pro-competitive joint venture or a merger agreement that is not anti-competitive) and the agreement is directly related to and reasonably necessary to give effect to the objective of the broader agreement; and (ii) the agreement is subject to regulated conduct defence (i.e., required or authorized under federal or provincial laws).

With these amendments, the Competition Act's treatment of no-poach and wage-fixing agreements would be more closely aligned with current U.S. antitrust enforcement policy. In recent years, the U.S. Department of Justice and Federal Trade Commission have increasingly looked to enforce criminal buy-side agreements, all with the objective of promoting competition in labour and employment markets.

The proposed no-poach and wage-fixing criminal provisions would become effective one year after the amendments receive Royal Assent in the summer of 2022. This delay in the effective date would provide time for employers to evaluate their direct and indirect buy-side agreements to assess the legality of such arrangements and, if necessary, to amend such arrangements so as to not trigger criminal liability.

Increased Financial Penalties

The proposed amendments also increase the fines available for criminal conspiracy convictions and administrative monetary penalties (AMPs) for civil reviewable matters (i.e., deceptive marketing practices and abuse of dominance), as follows:

• Upon a conviction of a criminal conspiracy (including the new no-poach and wage-fixing offences), the current limit of $25 million would be increased to a fine "in the discretion of the court." The maximum term of imprisonment upon conviction would remain at 14 years.
• Upon a finding of anti-competitive conduct for civil misleading representations and abuse of dominance, the AMP that may be issued by the Competition Tribunal (Tribunal) would equal the greater of: the current AMP amounts ($10MM for a first order and $15MM thereafter); and three times the value of the benefit derived from the conduct, if that amount can be reasonably determined, or three percent of the corporation's annual worldwide gross revenues.

False and Misleading Advertising—Drip Pricing Explicitly Prohibited

The proposed amendments would explicitly recognize "drip pricing" as anti-competitive conduct prohibited under both the criminal and civil false and misleading advertising provisions. Drip pricing is the practice of offering or advertising (i.e., making representations) unattainable headline prices to attract consumers while adding or burying additional fixed obligatory charges or fees in the final price, making the initial headline price unobtainable. These amendments would align the Bureau's recent enforcement approach against drip pricing practices under the existing false and misleading advertising provisions, and arguably make it easier for the Bureau to challenge drip pricing.

Abuse of Dominance: Allow Private Right of Access to the Tribunal and Expand Definition of Anticompetitive Conduct

The proposed amendments would allow private parties who are substantially affected by the alleged anti-competitive conduct of a dominant firm, if granted leave by the Tribunal, to commence actions before the Tribunal for an order under the abuse of dominance provisions. Currently, only the Commissioner of Competition (Commissioner) may make an application to the Tribunal under the abuse of dominance provisions. These amendments are designed to increase the 'enforcement' of abuse of dominant position by supplementing the Commissioner's challenges, especially in light of the proposed amendment that the Tribunal may not make an inference from the fact that the Commissioner has or has not taken any action in respect of the matter. However, it appears that as currently designed, the amendments do not provide for the possibility that private applicants will receive any financial compensation (i.e., damages) in the event the Tribunal makes an order against the dominant firm, as AMPs are monetary penalties payable to the Government, not the applicant, and the costs of an application before the Tribunal are not insignificant.

The proposed amendments to the abuse of dominance provisions also: (i) broaden the definition of "anti-competitive conduct" beyond conduct intended to negatively impact a competitor that is predatory, exclusionary, or disciplinary to include any conduct intended to have an adverse effect on competition; (ii) expand the (non-exhaustive list of) examples of anti-competitive conduct to explicitly include a selective or discriminatory response by a dominant firm to an actual or potential competitor for the purpose of impeding or preventing entry into or expansion in a market or eliminating a competitor from a market; and (iii) codify the ability of the Tribunal to consider the effect of the practice on barriers to entry (including network effects), on price and non-price competition (including quality, choice and consumer privacy), the nature and extent of change and innovation in the relevant market.

Mergers and Non-Criminal Competitor Collaborations—Additional Factors to be Considered

The proposed amendments set out additional factors that the Tribunal may consider in the context of mergers and civil reviewable competitor collaborations to determine whether there is a substantial prevention or lessening or competition. These additional factors appear to be an attempt to acknowledge/modernize the factors for the digital world, and include: network effects, impact on non-price competition (such as quality, choice and consumer privacy) and whether a merger or competitor collaboration agreement would contribute to the entrenchment of the market position of leading incumbents.

New Anti-Avoidance Rule for Merger Notification

The proposed amendments include a new anti-avoidance provision that would extend the pre-merger notification regime to include transaction structures that are designed to avoid the application of the notification provisions of the Competition Act.

Next Steps

As noted above, the Federal Government has embarked upon a process to reform the Competition Act with the stated objective of improving its effectiveness to meet the perceived challenges of the modern, digital economy. So far, the proposed amendments are piecemeal and do not address all of the issues regarding the Competition Act regime that have been identified by the Government as deserving of action, or those advocated for by the Bureau and various stakeholders. In addition, the current proposed amendments are being put forward in a summary fashion, likely avoiding the benefit of the finalization of the Government's review process announced in February 2022 and will not likely benefit from debate and scrutiny given that they are packaged in the omnibus Budget Implementation Act, 2022. At some time in the future, once the full suite of amendments is proposed—assuming the government sees through the announced review process—we will know the full impact.

The proposed amendments (and certainly those being pushed in by the Bureau and others) are complex and may have a significant impact on the conduct of companies doing business in Canada. Conduct that is currently permitted under the Competition Act may become criminal or civilly reviewable, among other changes. Accordingly, firms will need to assess their businesses and business plans to understand the impact of the amendments on their businesses, including, for example, reviewing agreements with unaffiliated entities in respect of employees to ensure compliance with the new buy side criminal provisions, assessing the impact of potentially increased enforcement and sanctions; and assessing the impact of the anti-avoidance provisions when structuring merger transactions.

To understand how the proposed amendments may impact businesses or to assist with any questions about the proposed amendments, please contact the authors or other members of the Bennett Jones Competition Antitrust Group.

¹ The Government's momentum to reform the Competition Act is evidenced by the Honourable Howard Wetston's October 27, 2021 Consultation Invitation - Examining the Canadian Competition Act in the Digital Era, the February 7, 2022 announcement by the Honourable Francois-Philippe Champagne, Minister of Innovation, Science and Industry, to commence a comprehensive review of the Competition Act and the Competition Bureau's February 8, 2022 submission to the Federal Government Examining the Canadian Competition Act in the Digital Era, with significant recommendations to strengthen the Competition Act, and the February 23, 2021 resolution of the House of Commons Standing Committee on Industry, Science and Technology (INDU) to study competitiveness in Canada, including reform of the Competition Act.

Authors