Competition Act amendments strengthening enforcement come into force

On June 23, 2022, important amendments to the Competition Act (the Act) came into force. The amendments are largely pro-enforcement in nature and will expand the reach of the Act to make it easier for the Competition Bureau (Bureau) to bring, and win, enforcement actions, open the regime to more private actions, and increase penalties for certain contraventions of the Act.

These amendments represent the first of two phases of planned changes to the Act. The government will begin consultations on the second phase of amendments to the Act shortly. The “efficiencies defence” will likely be a key area of consideration in the next phase.

What you need to know

• The amendments affect all key areas of competition enforcement, including anti-competitive agreements, abuse of dominance, merger review, and deceptive marketing.
• Amendments include:
  • creating the new criminal offence of wage-fixing and no-poach agreements between employers;
  • removing of a $25 million cap on fines for conspiracy offences and replacing it with an uncapped fine at the discretion of the court;
  • increasing the abuse of dominance penalties to as high as 3% of a firm’s annual global gross revenue;
  • expanding the scope of what is considered an anti-competitive act for the purpose of abuse of dominance;
  • allowing private parties to bring abuse of dominance claims before the Competition Tribunal (Tribunal);
  • adding an anti-avoidance provision to prevent parties from structuring transactions to avoid merger notification; and
  • explicitly introducing “drip pricing” as a statutory form of deceptive marketing, with penalties as high as 3% of the firm’s annual global gross revenues.

Background

The amendments to the Act are intended to address what the government and the Bureau view as deficiencies within the current legislation. The revisions act upon previous government statements that Canada’s competition regime is increasingly out of step with those of other jurisdictions, including the United States. Whether that is accurate is debatable, and it was sometimes used as a basis for justifying a lack of enforcement. What is clear is that the amendments are likely to give rise to new ambiguities and risks for individuals and businesses operating in Canada.

The amendments were not subject to meaningful consultation. A parliamentary committee reviewing the legislation split on the subject of consultation, with a minority recommending that changes not be implemented without additional consideration.

Wage-fixing and no-poach agreements

One of the most significant amendments is the addition of the criminal offence of wage-fixing prohibiting any agreement between employers fixing or controlling salaries, wages or an employee’s “terms and conditions of employment”. Unlike the existing anti-conspiracy provisions, the new offence does not require that the parties to the agreement be industry competitors. Any agreement between employers, even those in completely different industries, could be caught and criminalized. The interpretation to be given to “terms and conditions of employment” is unclear, but it is broad and could prohibit employers from agreeing on worker-friendly terms unrelated to competition between them, such as such as appropriate health and safety protocols for managing Covid risks. 

The new offence also prohibits agreements between employers to not hire or solicit each other’s employees. These new provisions only apply to employment relationships, not with respect to contractors or individuals who are self-employed. Common non-solicitation clauses in merger agreements would likely be exempt under the revised Act, as such agreements that are part of an overall proposed merger often fall under an established ancillary restraints defence. 

As with the anti-conspiracy provisions of the Act, penalties for engaging in wage-fixing include up to 14 years’ imprisonment, a fine to be determined by the court, or both. 

The wage-fixing amendments will not take effect until one year after coming into force, giving businesses time to consider and amend their practices.

Making enforcement easier

Most of the amendments to the Act will make enforcement easier for the government (and private actors), while also increasing the penalties for contravention of the Act.

Abuse of dominance

The amendments to the abuse of dominance provisions include clarifying that an “anti-competitive act” is one where the intended purpose is a negative effect on a competitor or competition. Additionally, the new legislation allows the Tribunal to specifically consider the impact that any network effects or entrenchment of market position may be having on competition. These additions are likely designed to address conduct by dominant firms in digital markets.

One of the more significant changes is to the penalties that may be ordered by the Tribunal for an abuse of dominance. Previously, penalties were capped at $15 million but, under the new penalty provisions, a company may be ordered to pay up to three times the value of the benefit of the anti-competitive act or, if that cannot be reasonably determined, up to 3% of the company’s annual worldwide revenues with no cap.

Lastly, the amendments open the abuse of dominance enforcement regime to private litigants and enable private actors to seek orders from the Tribunal. While such private litigants will not have the right to civil damages, they can pursue a penalty order payable to the government. Private parties essentially suing for government penalty amounts rather than provable civil damage amounts could create perverse litigation dynamics including any related settlement discussions.

Deceptive marketing

The Bureau has recently focused its attention on a form of deceptive marketing known as “drip pricing”, and it has taken action in the car rental, entertainment ticketing and flight booking industries.

Drip pricing typically occurs in online markets where an unattainable price is advertised and, as customers click through a purchase, further fixed fees are subsequently added to the final price. The amendments specifically incorporate the concept of drip pricing into the false or misleading representation sections of the Act and permit actions to be brought under both the criminal and civil regimes. The new definitions of drip pricing, however, are ambiguous, and it is unclear whether, for example, a delivery surcharge added at the end of a purchase would be captured by the expansive definitions.

Moreover, the penalties associated with civil misleading advertising will be dramatically increased to include, for a company, up to 3% of annual worldwide revenue, which is incredibly high for a non-criminal consumer protection matter.

Other amendments

A new amendment to the merger regime specifically prevents parties from structuring a transaction to avoid the pre-merger notification requirements in the Act.

Another amendment enhances the Bureau’s investigative powers by making individuals or companies outside Canada, but that carry on business or sell products in Canada, subject to compulsory court orders that can require extensive document production or compelled testimony.

Conclusion

The amendments represent the most substantial changes to the Act since the legislation was reworked in 2009.

Businesses operating in Canada should consider whether and how these amendments will apply to their current conduct and consider working with experienced legal counsel appropriately attuned to these issues to adapt accordingly.

The government will begin consultations on the second phase of amendments to the Act shortly, possibly as early as July, and they are expected to be completed by the end of the year. These further amendments could be significant. The “efficiencies defence”, a unique feature of Canadian competition law that provides a complete defence to a merger where the merger’s efficiency gains outweigh its anti-competitive effects, is likely to be a key area of consideration.

In the meantime, it remains to be seen whether and how the newly empowered Bureau will use its new authority.