On June 23, 2022, significant amendments to Canada’s Competition Act became law. The amendments can be broken down into five categories: Abuse of Dominance, Criminal Cartel and Competitor Collaborations, Marketing and Consumer Protection, Merger Review and Evidence Gathering. All amendments are currently in effect with the exception of the new criminal provision for wage-fixing and no-poach agreements and the increased penalties under the existing criminal cartel provisions of the Act, which will come into effect on June 23, 2023.
A number of these amendments are particularly noteworthy for local and global agribusiness, food and beverage producers, distributors and retailers doing business in Canada. This bulletin breaks down salient components of these amendments in practical terms and provides key takeaways and compliance tips for agribusiness, food and beverage businesses operating in Canada.
Abuse of Dominance
Expands Scope of Conduct Captured: Jurisprudence arising from the abuse of dominance provisions has historically found that an “anticompetitive act” is one that is intended to have a predatory, exclusionary or disciplinary negative effect on a competitor in a relevant market that the dominant firm substantially or completely controls, whether or not the competitor and dominant firm are in the same market. The amendments expand this definition of anticompetitive act to also capture conduct intended to “have an adverse effect on competition” or “a selective or discriminatory response to an actual or potential competitor”, including nascent competitors. Conduct that negatively affects non-price considerations also explicitly captured, such as the effect of the practice on barriers to entry (including network effects), quality, choice and consumer privacy, as well as the nature and extent of change and innovation in the market.
Private Access: Private parties are now permitted to apply to the Competition Tribunal for a remedy arising from an alleged abuse of dominance. Prior to this amendment, only the Commissioner of Competition (the “Commissioner”) could seek a remedy before the Competition Tribunal for abuse of dominance.
Increased Financial Penalties: Available administrative monetary penalties have increased significantly from $10 million (for a first violation by a corporation) to up to 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% of a party’s annual worldwide gross revenues.
Explicit Prohibition of Practice of Drip Pricing: The Act now includes an explicit prohibition against drip pricing (criminal and civil). Specifically, offering a product or service at a price that is unattainable due to fixed obligatory charges or fees will be deemed to constitute a false or misleading representation, unless the obligatory charges or fees represent only an amount imposed by or under an Act of Parliament or the legislature of a province. In contrast to past drip pricing cases, including the cases involving car rentals and online tickets and travel, the amendment seeks to remove the Commissioner’s burden to prove that such representations are false and misleading, With the inclusion of a criminal prohibition, increased class action litigation relying explicitly on drip pricing allegations may also emerge.
Increased Financial Penalties: For the civil track, available administrative monetary penalties have increased significantly from $10 million (for a first violation by a corporation) to up to 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% of a party’s annual worldwide gross revenues. The penalties under the criminal track (which include imprisonment for a term not exceeding 14 years and/or a fine in the discretion of the court) have not been changed.
Expansion of Relevant Factors When Assessing Competitive Effects: The list of relevant factors when assessing the competitive effects of proposed mergers will now explicitly include an analysis of (i) network effects within the relevant market, (ii) whether the proposed merger would entrench the market position of leading incumbents and (iii) any effect of the merger on price or non-price effects, including quality, choice and consumer privacy. The Competition Bureau (the “Bureau”) already considers many of these factors as part of its merger review process, but the codification in these factors emphasizes their importance. However, the role and scope of consumer privacy in the merger review analysis remains unknown. In particular, what remains unclear is whether consumer privacy will be a product feature in a conventional competitive effects analysis or whether consumer privacy is intended to be a new objective of the Act.
New Anti-Avoidance Provision: The Act’s pre-merger notification requirements will apply to a non-notifiable transaction “designed to avoid” the pre-merger notification regime. In other words, notification and pre-closing approval is required for transactions that were deliberately structured to avoid the application of the Act’s pre-merger notification regime.
Criminal Cartel and Competitor Collaborations
New So-Called Wage Fixing/No-Poaching Agreement Offence: In one year from now (June 23, 2023), the criminal conspiracy offences under the Act will include a prohibition against so-called (i) “wage-fixing” agreements that “fix, maintain, decrease or control salaries, wages or terms and conditions of employment” and (ii) “no-poaching” agreements to “not solicit or hire employees” between unaffiliated employers. As with the existing cartel provisions, this new provision would potentially allow wage-fixing and no-poaching agreements to be inferred from circumstantial evidence and would include both an ancillary restraints defence and a regulated conduct defence. This change is intended to align Canada’s approach to these types of agreements with the highly controversial approach recently adopted by the United States Department of Justice. These amendments do not appear to require that the employers be competitors or potential competitors, which is unlike the framework that applies to the general conspiracy provisions in the Act.
Explicit Prohibition of Practice of Drip Pricing: As discussed under the Deceptive Marketing Section above, the Act will include an explicit prohibition against drip pricing (criminal and civil), namely that practice of “the making of a representation of a price that is not attainable due to fixed obligatory charges or fees” unless the obligatory charges or fees represent only an amount imposed by government under statute. If the Bureau opts to proceed criminally, defendants could face imprisonment for a term not exceeding 14 years and/or a fine in the discretion of the court.
Increased Financial Fines: Available fines under the criminal cartel provisions will increase from a maximum of $25 million to an amount “in the discretion of the court”. This amendment will come into force on June 23, 2023.
Competitor Collaborations: The expanded list of relevant factors when assessing the competitive effects of mergers, discussed above, will also be considered when assessing non-criminal competitor collaborations under section 90.1 of the Act.
Expand Evidence Gathering Powers
The Bureau’s evidence gathering powers under section 11 of the Act have been expanded. In particular, at the request of the Commissioner, a judge may (i) make an order against a person outside Canada who carries on business in Canada or sells products into Canada and (ii) order that a corporation make and deliver a written return of information in the possession of an affiliate, whether located in Canada or outside Canada. These changes seek to clarify the Bureau’s ability to obtain all of information the Bureau considers necessary to support its enforcement investigations, including information held by foreign affiliates.
Compliance Tips for Agribusiness, Food & Beverage Businesses Operating in Canada
The amendments suggest that Canada is embracing vigorous competition law enforcement, with higher penalties and more opportunities for private enforcement before the Competition Tribunal and through class actions. The amendments also raise new and untested analytical frameworks for the Bureau and, in turn, compliance challenges for businesses. Given the consequences that can arise from the failure to comply with the Act and the significant expense associated with enforcement proceedings, agribusiness, food and beverage businesses operating in Canada would be well advised to carefully review their existing practices and to either implement or update a competition law compliance program.
The following are a few compliance tips for agribusiness, food or beverage businesses operating in Canada.
- Closely Consider the Competitive Impact of Business Strategies: It is not uncommon for businesses in the agribusiness, food and beverage space to be considered to have high market share in one or more markets or segments in Canada, whether upstream or downstream. In circumstances where the market share may be as high as 50% (or even moderately below 50%), such businesses should closely consider the competitive impact of their business strategies. The review should represent a broad competitive impact screen. In particular, the review is no longer limited to considering whether the conduct is intended to have a predatory, exclusionary or disciplinary negative effect on a competitor, but now extends to include a broader set of questions, including: (i) whether the conduct may have an adverse effect on competition (including in upstream and downstream markets); (ii) whether the conduct may be considered a selective or discriminatory response to an actual or potential competitor, including nascent competitors; (iii) whether the conduct impacts barriers to entry, including network effects; and (iv) whether the conduct affects non-price dimensions of competition, such as quality, choice and consumer privacy.
- Review HR Practices and Expand Compliance Measures: Human resource (“HR”) practices should be reviewed to ensure that employers – whether or not those employers are competing agribusiness, food or beverage businesses – are not involved in practices that may be considered (i) wage-fixing or no-poach agreements/arrangements, or (ii) improper information sharing that may be perceived as facilitating such agreements/arrangements. We expect most agribusiness, food or beverage businesses to already have robust competition/antitrust compliance measures in place vis-à-vis the general conspiracy offences in the Act. These compliance measures should now be expanded to include HR practices and professionals. Since this amendment will not take effect until June 23, 2023, the time necessary to engage in appropriate audit measures and develop best practices can be taken.
- Exercise Caution with Non-Solicit Clauses: Non-solicit clauses or other employee-related provisions in transaction agreements should have regard to the new wage-fixing/no-poaching prohibition. In particular, provisions that go beyond what may be typical in duration and scope should be considered closely to ensure they are reasonably necessary to achieve the objective of the broader transaction agreement.
- Review Pricing Practices: Having regard to explicit criminal and civil prohibitions against drip pricing, agribusiness, food or beverage businesses that advertise prices (whether directly or indirectly through third parties) should ensure that headline prices reflect mandatory charges.
The Bureau issued a news release on June 24, 2022, acknowledging the adoption of these amendments. The Bureau has also issued a short guidance document with respect to these amendments, and, in the coming weeks, will offer public online information sessions and publish updated guidance for businesses to further inform stakeholders about the amendments. Notably, the Bureau referred to these amendments as only a “preliminary phase in modernizing Canada’s competition regime”. More fundamental changes to the Act are be expected as the government continues its efforts to modernize and strengthen competition law in Canada.