Significant changes to Canadian competition law

December 2022 | SPOTLIGHT | COMPETITION & ANTITRUST

Financier Worldwide Magazine

December 2022 Issue

Important amendments to Canada’s Competition Act were enacted on 23 June 2022, with the passing of the federal government’s 2022 budget implementation legislation.

The amendments foreshadow more aggressive Competition Bureau enforcement of the Act, especially regarding the abuse of dominance provisions, with companies operating in digital and high-tech industries of particular interest.

The amendments also may lead to a new wave of private enforcement actions, whether private applications to the Competition Tribunal alleging abuse of dominance violations or private civil actions for damages resulting from alleged involvement in wage-fixing, no-poaching agreements or drip-pricing conduct (all of which will become potential criminal offences).

The expanded scope of liability, and the associated increase in potential penalties, means that companies doing business in Canada will have to take into account additional significant considerations in their competition compliance efforts.

Key aspects of amendments

Expanding the abuse of dominance provisions. The amendments will: (i) expand the type of conduct that can be caught by the abuse of dominance provisions to include practices intended to “have an adverse effect on competition” or “a selective or discriminatory response to an actual or potential competitor”, as well as conduct that negatively affects non-price considerations such as quality, choice and consumer privacy; (ii) significantly increase potential financial penalties from the current maximum of $10m (for a first violation) to as much as 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 percent of a party’s annual worldwide gross revenues; and (iii) permit private parties to apply to the Competition Tribunal for relief against alleged abuses of dominance (currently only the Commissioner of Competition can bring enforcement action for abuse of dominance).

Expanding the criminal cartel provisions. One year after royal assent, on or about 23 June 2023, the amendments will: (i) extend the Act’s criminal conspiracy offence to prohibit “wage-fixing” agreements that “fix, maintain, decrease or control salaries, wages or terms and conditions of employment” and “no-poaching” agreements to “not solicit or hire employees” unless they can be shown to be reasonably necessary for giving effect to a lawful broader or separate agreement; and (ii) substantially increase potential fines for violations of the criminal conspiracy provisions by removing the current cap of $25m for fines and instead permitting fines “in the discretion of the court”, with no express limit.

Expanding the misleading advertising provisions. The amendments will: (i) explicitly prohibit the practice of drip pricing (under both civil and criminal provisions) – that is, “the making of a representation of a price that is not attainable due to fixed obligatory charges or fees” imposed by a seller; and (ii) substantially increase the penalties available for civil misleading representations in a manner similar to abuse of dominance – that is, by raising the maximum corporate penalty to three times the value of the benefit derived by the conduct or, if the value of the benefit cannot be reasonably determined, up to 3 percent of the entity’s annual worldwide gross revenues.

Merger review. The amendments will: (i) add a new anti-avoidance provision stating that the Act’s pre-merger notification requirements will apply to any non-notifiable transaction that was “designed to avoid” the pre-merger notification regime; and (ii) expand the relevant factors for assessing the competitive effects of transactions to include non-price factors such as network effects, quality, consumer choice and consumer privacy (similar to abuse of dominance).

Implications: new uncertainties and challenges

The amendments introduce new areas of uncertainty and create novel compliance challenges for businesses in Canada.

The changes to the abuse of dominance provisions upend established jurisprudence and dilute a key legal screening tool that may make it more difficult for companies to distinguish between aggressive pro-competitive conduct and anticompetitive abuses of dominance.

The introduction of the new wage-fixing and no-poaching offences could affect legitimate employee-related arrangements between parties in lawful M&A agreements, such as non-solicit provisions and interim restrictions on changes in salaries, wages or terms and conditions of employment.

It is unclear how the Bureau will determine whether a transaction was structured with the intent to avoid the Act’s pre-merger notification provisions and how it will try to enforce the notification requirements in those circumstances.

The introduction of novel assessment factors for the review of mergers and dominant firm conduct (such as impacts on consumer privacy) may make outcomes less predictable and could be the ‘thin edge of the wedge’, presaging the incorporation of other non-competition factors, such as impacts on labour and economic inequality.

Compliance tips

Below are a few key compliance suggestions to help deal with the changes and uncertainties ushered in by the amendments.

First, the heightened potential for abuse of dominance allegations means that parties with sizeable market share (50 percent-plus and potentially lower depending on market structure) must carefully assess the likely competitive impact of their business strategies on competitors as well as on upstream and downstream markets, especially if such acts could be regarded as ‘selective or discriminatory’ responses to competitors. A good place to start is by asking the question: Why are we doing this?

Second, parties engaged in merger transactions should avoid using non-solicit clauses or other interim employee-related provisions in transaction agreements that go beyond what would be considered typical (in duration and scope). Alternatively, they should be prepared to explain why atypical terms are reasonable and necessary to achieve the objectives of the broader agreement.

Third, although not likely to arise frequently as an issue, merging parties should also be mindful of the new anti-avoidance provision for pre-merger notifications when structuring their transactions. One option for non-notifiable transactions could be to document a clear, credible and uncontradicted business rationale for the transaction’s structure to mitigate the risk of avoidance allegations.

Fourth, companies should audit their HR practices to confirm whether they are involved in wage-fixing or no-poaching arrangements with other employers, or in any discussions or exchanges of information on these topics. One area to focus on is whether the company is involved with industry organisations that may share employment-related information as part of benchmarking exercises. Companies will also have to ensure that internal compliance materials and training encompass a discussion of potential HR risks, and that HR personnel are included in compliance training.

Fifth, advertised prices (including by third-party or affiliate marketers) must reflect all mandatory charges to mitigate the risk of allegations of drip-pricing behaviour.

Lastly, as always, be vigilant in ensuring that internal, ordinary course documents do not create the erroneous impression of anticompetitive intent or conduct, and that they document the pro-competitive nature of business decisions and initiatives.

Looking ahead

The recently enacted amendments represent only a first wave of anticipated changes to the Act. The Canadian government has said that it is committed to a further “comprehensive review” of Canadian competition law, with more far-reaching reforms likely to be introduced as a result. In particular, we expect the Bureau to try to rebalance the Act’s merger review process to make it easier to challenge transactions, and to secure broad and compulsory powers to conduct “market studies”. It is thus distinctly possible that, within the next year, Canadian competition law will be even more onerous and tilted toward even more aggressive enforcement.

Mark Katz, Anita Banicevic and Charles Tingley are partners at Davies Ward Phillips & Vineberg LLP. Mr Katz can be contacted on +1 (416) 863 5578 or by email: mkatz@dwpv.com. Ms Banicevic can be contacted on +1 (416) 863 5523 or by email: abanicevic@dwpv.com. Mr Tingley can be contacted on +1 (416) 367 6963 or by email: ctingley@dwpv.com.

Mark Katz, Anita Banicevic and Charles Tingley

Davies Ward Phillips & Vineberg LLP