Earlier this year, the Minister of Innovation, Science and Industry  announced that amendments to the  Competition Act would come in two stages. The first round of changes were revealed in the  Budget Implementation Act (the "BIA") on April 26, and once passed will have a significant impact on businesses operating in Canada. Agreements to fix wages or restrict hiring will now be criminal, and any criminal agreements will be subject to unlimited monetary fines. Abuse of dominance actions, currently the exclusive purview of the Commissioner of Competition, will now be available to private parties, with significantly higher potential penalties. We provide the highlights and assess the preliminary impact below.

Canada's Commissioner of Competition, Matthew Boswell, delivered a passionate call to arms  speech last fall outlining a number of areas where he thought the Competition Act could be improved and strengthened. In doing so, his "get tough" message was consistent with the approaches being taken in the United States and Europe. The Government of Canada increased funding for the Competition Bureau in last year's federal budget; this year's budget delivers the largest suite of changes to our competition laws since 2009. 

No Poach Agreements Criminalised

Currently, the Competition Act's criminal cartel provisions prohibit agreements among competitors to fix prices, allocate markets or restrict output for the supply of a product or service, with violations subject to maximum fines of $25 million and/or up to 14 years imprisonment. Agreements among competitors relating to any other conduct, which result in a substantial lessening or prevention of competition, are subject to sanction by the Competition Tribunal, including an order to prohibit the conduct. The Bureau confirmed last year that agreements among employers to fix wages or to restrict the hiring of employees (so called no poach agreements) are not covered by the criminal prohibition because such agreements deal with the purchase of labour, not its supply. 

The BIA proposes amendments to the criminal provisions to explicitly capture agreements among employers to fix wages or restrict the hiring of employees. These amendments raise two questions: (i) there does not appear to be a requirement that the employers be competitors or likely competitors, which is the framework that applies in the rest of the criminal prohibition; and (ii) non-solicitation provisions are commonly found in agreements to purchase a business in order to protect the buyer from losing key employees. The Competition Act already provides for an ancillary restraints defence and the proposed reforms make clear it will continue to apply to these new classes of agreements, but an explicit exemption (similar to Ontario's recently enacted ban on non-compete provisions) would be preferable to relying on a defence. 

Significantly Increased Fines and Monetary Penalties

The Commissioner has complained in the past that the current fines and monetary penalties are too low to dissuade improper conduct, and that corporations regard these penalties as a "cost of doing business." The BIA will change the maximum fine for violating the cartel provisions from $25 million to an amount in the discretion of the court. For violations of the abuse of dominance and misleading advertising provisions, it's proposed that maximum fines increase to either three times the amount of the benefit derived by the conduct, or where that cannot be determined, up to 3% of the company's global revenues. 

Private Actions and Clarified Scope for Abuse of Dominance

Unlike in the United States, private plaintiffs in Canada cannot bring an action alleging that a company has engaged in abuse of dominance. Only the Commissioner of Competition can commence such an action, and to date enforcement of the abuse of dominance provisions has been rare. The BIA proposes amendments that will allow private parties, with leave of the Competition Tribunal, to commence their own abuse of dominance actions. As noted above, the potential penalties for engaging in abuse will also increase, but importantly in a private action any monetary payment will continue to be made to the government. The proposed amendments also codify a definition of abuse that has existed in the caselaw: "any act intended to have a predatory, exclusionary or disciplinary negative effect on a competitor, or to have an adverse effect on competition." 

Drip Pricing Added to Misleading Advertising Provisions

The Commissioner has commenced – but settled – a number of high profile actions against companies alleging violations of the misleading advertising provisions for practices known as "drip pricing," where an in initial price is advertised but additional non-optional fees are included in the final price, making that initial price unobtainable. The BIA proposes to include an explicit definition of drip pricing and make clear that it constitutes misleading advertising. As noted above, violations of this provision will now attract significantly enhanced penalties.

Digital Friendly Factors When Assessing Impact on Competition

A number of provisions in the Competition Act require a finding that competition has been substantially lessened or prevented, including mergers, abuse of dominance, and non-criminal agreements among competitors. The Act sets out criteria for the Competition Tribunal to consider when making this finding. The BIA proposes to include several additional criteria that are particularly important when assessing competition in digital markets: : (i) the effect on barriers to entry in the market, including network effects; (ii) the effect on price or non-price competition, including quality, choice or consumer privacy; and (iii) the nature and extent of change and innovation in a relevant market.

Clarifications to Merger Provisions

The Act currently specifies the types of transactions that are captured by the merger notification obligations, and if a transaction's structure is not among them, no merger notification must be filed. Both the Minister and the Commissioner have complained that this amounts to companies using "loopholes" to avoid the merger notification regime in the Competition Act, which overlooks the fact that the Bureau may still have the substantive authority to review the transaction. To address this, the BIA proposes to add an anti-avoidance provision intended to capture transactions designed to avoid application of the merger notification provisions. The BIA also clarifies some questions related to the computation of time for waiting periods and imposes a statutory 5 pm ET deadline for a filing to be counted as received on that date. 

Next Steps

The last major amendments to the Competition Act were also passed through a budget bill. If history is any guide, the competition related provisions of the BIA (which account for only ten of 443 pages) will receive limited scrutiny when reviewed by the House and Senate finance committees, as the bulk of the bill is related to the various spending and related measures associated with the federal government's annual budget. It is unfortunate that amendments of this magnitude will likely be passed with very little scrutiny. It is expected that additional amendments will be forthcoming in a second round, with the expectation that they will be debated extensively. These are likely to include the role of efficiencies in merger review and the role that non-economic factors should play in the Competition Act as a whole.

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