Leap before you look: significant amendments to Canada’s Competition Act

August 2022  |  SPECIAL REPORT: COMPETITION & ANTITRUST

Financier Worldwide Magazine

August 2022 Issue

More than a decade after the last set of reforms, wholesale amendments to Canada’s Competition Act came into force on 23 June 2022 through the federal government’s Budget Implementation Act, 2022 (BIA). Further amendments – even more extensive in scope – will likely be brought forward for consultation later in 2022.

The genesis for reform lies in the early stages of the coronavirus (COVID-19) pandemic, when several Canadian grocery chains were criticised for, and summoned before parliamentary committees to justify, their allegedly suspicious decision to cease making ‘hero bonus’ payments to their employees at the end of the pandemic’s first wave. While claims of deliberate coordination between the retailers were not substantiated, of greater importance was the realisation among Canada’s political community that the Competition Act did not categorise certain agreements between employers – relating to wage fixing and no-poach arrangements – as per se infringements, meaning that they could not be pursued as criminal conspiracies in Canada without the need to establish anti-competitive effects.

Since then, momentum has accelerated for reform of the Competition Act more broadly. This is partly owing to the Commissioner of Competition’s increasingly vocal position that the Competition Bureau needs a wider range of tools to investigate and pursue alleged anti-competitive behaviour, especially in the digital economy, as well as an emerging governmental consensus that Canada should do more to align its enforcement framework with peer jurisdictions such as the US, European Union (EU) and the UK.

The enacted amendments cover several different topics. In addition to the criminalisation of wage fixing and no-poach agreements, key among the changes are: a substantial increase in the financial penalties available for per se infringements involving criminal conspiracy, abuse of dominance and civil marketing misrepresentations, an expansion of the statutory factors to be taken into account by the Competition Tribunal (Tribunal) when adjudicating on alleged abuse of dominance, anti-competitive mergers and competitor collaborations, the provision of rights of private access to parties in abuse of dominance cases to the Tribunal, and the introduction of an explicit anti-avoidance provision for mergers “deliberately structured” to avoid Canada’s notification thresholds.

In each area, there are unanswered questions as to both the conceptual underpinning for the changes, and their practical utility. Central to these concerns is the lack of any form of public consultation with informed stakeholders as to the likely effect of the amendments on the Canadian enforcement landscape specifically, and on the Canadian economy more broadly.

In this article, these deficiencies are highlighted primarily by reference to the headline-grabbing amendment bringing wage fixing and no-poach agreements within the scope of Canada’s criminal conspiracy provisions. Competition policy and enforcement is a complex area, where business, economics and the law intersect in a regulatory framework that must simultaneously deter truly unlawful conduct, while guarding against chilling effects that discourage companies from innovation and competition on the merits, which both act as the engine for economic development. Meaningful reform of the Competition Act therefore deserves meaningful engagement by government on reform proposals well in advance, to ensure that any amendments consider this delicate equilibrium.

Before considering the likely reform to certain buy-side agreements in more detail, it is important to refresh our understanding of the historical status of wage fixing and no-poach agreements in Canada.

A brief history lesson

The first criminal conspiracy provision in Canada governing harmful horizontal agreements was enacted in 1889, a year before the introduction of the US Sherman Act. It did not distinguish between supply-side (price fixing) and purchaser-side (wage fixing conspiracies) agreements, simply prohibiting “[e]very person who combines, conspires, agrees or arranges with any other person…to unduly prevent or lessen competition”. It also did not establish a civil standard for such agreements, treating them exclusively as potentially criminal conspiracies. As well, the law did not distinguish between per se infringements, such as naked price fixing and those that should be subject to a rule of reason analysis, joint research and development agreements, for example, requiring in each that any impugned conduct must be proven to “unduly” prevent or lessen competition.

Only in 2009, with long-awaited reform to the Competition Act, was a dual track for civil and criminal enforcement of horizontal agreements introduced in Canada. This established a set of supply-side practices – price fixing, market and customer allocation, output restrictions and bid rigging – that would be subject to a per se criminal standard. All other horizontal agreements, including any type of buy-side agreement, would be assessed on a rule of reason approach, determining whether the anti-competitive effects of the conduct outweighed its pro-competitive impact.

Criminalisation of wage fixing and no-poach agreements is flawed in method and substance

For a number of reasons, the decision to re-criminalise wage fixing and no-poach agreements in the BIA was short-sighted, and evidently driven by political expediency rather than based on a principled understanding of the economic and legal issues in this complex area.

First, there remain fundamental conceptual questions as to whether these types of buy-side agreements should be treated as per se offences attracting automatic criminal liability. The Canadian government has made clear that emulating the current per se treatment of these agreements in the US was a key motivation for reform. However, crucially, their per se treatment in the US is an enforcement posture by the agencies, not a matter of legislative codification. The current stance in the US is based on a long history of jurisprudence relating to buy-side agreements, which has recognised that many types of buy-side agreements can have a pro-competitive impact, especially on the downstream experience of consumers. Reflecting this, the US Department of Justice’s (DOJ’s) official policy is to pursue only “naked” wage fixing and no-poach agreements on a per se criminal track. This nuance is absent from the Canadian reforms, which seem to identify all types of wage fixing and no-poach agreement as “naked” restraints on competition.

Moreover, given the current practice in the US is an enforcement posture by the DOJ and not a statutory mandate, the extent to which naked wage fixing and no-poach agreements are per se offences is ultimately a matter for the courts, not top-down governmental direction. The signs thus far suggest that governments will face an uphill struggle in prosecuting buy-side agreements to a criminal standard of proof. The DOJ’s first two criminal prosecutions for labour markets collusion (the Jindal and DaVita cases) recently ended in defeat; juries in both trials acquitted the defendants of alleged wage fixing and no-poach agreements. Accordingly, basing such a major legislative change in Canada upon an unsettled enforcement stance in the US seems premature and shortsighted.

Second, even if criminalisation were conceptually sound, there are many significant practical obstacles for the Bureau in bringing successful prosecutions. Historically, the Bureau’s cartel prosecution track record is poor, other than a string of bid-rigging cases arising out of the findings of the Quebec Charbonneau Commission into corruption in public construction contracts. In addition to meeting the beyond reasonable doubt standard, the Bureau must also work harmoniously with the Public Prosecution Service of Canada, which has responsibility for prosecuting criminal cases in Canada, and consider how best to incentivise parties to come forward via its immunity and leniency programme, which has been dormant for some time.

Third, it would have been possible to deter egregious buy-side conduct lacking any pro-competitive justification via other reform proposals. For example, buy-side agreements could have remained inside the civil competitor collaborations framework, and be subject to a rule of reason analysis grounded in an assessment of effects. However, the civil regime could have been granted financial sanctions powers (currently, the only remedy available is an order requiring the parties to cease the conduct). Akin to Canada’s abuse of dominance provisions and civil enforcement regimes in other jurisdictions such as the EU, this might encourage parties engaging in collaborations with their competitors to undertake a fulsome risk analysis, with the threat of a significant fine for collaborations that do not have a pro-competitive rationale, such as naked wage fixing arrangements.

Fourth, even if one supports the reform conceptually and accepts the associated practical challenges, the amendments are textually ambiguous and would have benefited from stakeholder engagement in advance. For example, the prohibition on wage fixing and no-poach agreements is arguably under-inclusive, since it only applies to “employers” and “employees”, arguably excluding arrangements involving self-employed workers and contractors which comprise a significant portion of the working population. Similarly, the prohibition applies to fixing any “terms and conditions of employment”, which is remarkably broad and clearly capable of capturing many pro-competitive employer collaborations, such as industry-wide health and safety protocols.

What will happen next?

The new criminal provisions for wage fixing and no-poach agreements will come into force 12 months after enactment, in June 2023. At least this moratorium provides a welcome pause in which businesses operating in Canada can review their employment practices and update their compliance procedures as necessary. However, the rushed process followed by the government leaves more questions than answers, and it will be incumbent on the Bureau to clarify its enforcement stance quickly to provide appropriate guidance to employers.

It is almost certain that a second phase of legislative reform will follow soon, either later in 2022 or in early 2023. Given the even more significant changes likely to be tabled in that second phase, it can only be hoped that government will hold a meaningful stakeholder consultation process. This step would be in keeping with Canada’s evident desire to emulate peer jurisdictions in the development of its competition policy, none of which have undertaken significant reforms without first seeking input from well-informed stakeholders.

 

Michael Caldecott is a partner at McCarthy Tétrault LLP. He can be contacted on +1 (416) 601 7738 or by email: mcaldecott@mccarthy.ca.

© Financier Worldwide

BY

Michael Caldecott

McCarthy Tétrault LLP

©2001-2024 Financier Worldwide Ltd. All rights reserved. Any statements expressed on this website are understood to be general opinions and should not be relied upon as legal, financial or any other form of professional advice. Opinions expressed do not necessarily represent the views of the authors’ current or previous employers, or clients. The publisher, authors and authors' firms are not responsible for any loss third parties may suffer in connection with information or materials presented on this website, or use of any such information or materials by any third parties.