Wide-ranging updates to Canadian Competition Act

For the first time in over 13 years, the Canadian Parliament amended its Competition Act. The amendments were passed with very little debate and were primarily framed as housekeeping changes despite the likely substantial impact on businesses across all industries. The amendments include a criminal prohibition on agreements between employers, increased fines for anticompetitive conduct, and a right to private access for abuse of dominance cases. These changes will likely change the way businesses operate and interact with each other in Canada.

This note summarizes a webinar program held on October 26, 2022 in which Chris Hersh, head of antitrust and competition, Canada, discusses these changes with Amanda Wait, head of antitrust, United States. View the full program recording.

Key changes

While there were various amendments, the most significant was the introduction of a per se criminal prohibition on agreements between employers. The criminal prohibition targets wage-fixing, as well as "no-poach" and "no-solicit" agreements. These prohibitions take effect next summer (July 2023), giving employers a few more months for compliance.

Other recent amendments included:

• Expanded factors for assessing the competitive effects of mergers
• Higher fines for price fixing and other anticompetitive agreements
• Clarification of the definition of "anticompetitive act" under the abuse of dominance provisions
• A right of private access to the Competition Tribunal for abuse of dominance cases
• Increase in the Competition Bureau's ability to gather evidence as it relates to foreign entities and affiliates who conduct business in Canada
• Addition of an anti-avoidance provision so that transactions cannot be structured to avoid pre-merger notification

The central concerns arising from the recent amendments are the increased fines for anticompetitive agreements and the criminalization of no-poach and no-solicit agreements between employers. Additionally, the introduction of a private right of access to the Competition Tribunal under the abuse of dominance provisions is significant.

Most concerning: Increased fines

Previously, criminal penalties for price fixing and other anticipative agreements included a potential 14-year jail sentence coupled with a fine to be capped at C$25m. Now, under the new amendments, there is a discretionary fine with no limitation on the amount to be paid.

In addition, there is an increase in fines for civil misleading advertising and abuse of dominance. Previously fines for this offense were capped at C$10m for corporations (C$15m for second offenses) and C$750,000 for individuals (C$1m for second offenses). These fines are now the baseline. Under the new amendments, the fine will now be the greater of the following amounts, either the amounts set out above or:

• For corporations, three times the benefit derived by the anticompetitive or deceptive conduct. If that amount cannot be reasonably determined, then the maximum penalty will be three percent of the company's annual worldwide gross revenues.
• For individuals, three times the benefit derived from the deceptive conduct, if that amount can be reasonably determined.

The increased fines, especially for abuse of dominance cases is puzzling because little evidence exists that this conduct is widespread, the Commissioner has very rarely sought to impose fines in abuse of dominance cases and because this conduct is presumptively legal until it is proven otherwise (where it is shown to result substantial lessening or prevention of competition). The concern is that the increased fines for abuse of dominance are intended to enhance the Competition Bureau's bargaining power in settlement negotiations and may incentivize strategic private litigation.

Expansion of criminal conduct

The per se prohibition on certain agreements between employers is almost certainly a response to both the increased enforcement of this conduct in other countries and the fallout of the COVID-19 pandemic, which led to alleged agreements between employers to decrease wages. The prohibition on wage-fixing closes a loophole in the existing criminal provisions of the Competition Act, which previously did not cover buyside agreements. While these employer agreements are per se illegal under the new changes, there is, however, an ancillary restraints defense. Under that defense, an anticompetitive agreement will not be prosecuted where it is found to be reasonably necessary to a separate legitimate agreement between the two parties. There, is virtually no guidance regarding the application of the ancillary restraints defense (which also applies to illegal agreements between competitors).

As of now, it is unclear what the Competition Bureau's enforcement policy will be concerning no-poach and no-solicit agreements, which are widespread in a variety of legitimate circumstances. The Bureau has stated that it will provide guidance before the law goes into effect in July 2023. However, there is a concern regarding how useful this guidance will be given that recent guidance from the Bureau is often less useful than has historically been the case.

Introduction of private right of access in abuse of dominance cases

The potential impact of a private right of access for abuse of dominance cases is unclear. Canada's abuse of dominance provisions are broad in scope and there is a wide range of conduct that is now potentially subject to private enforcement as a result of the amendments. There are, however, two checks on the private enforcement power to limit frivolous cases from being brought. The first check is that private litigants will need to obtain leave before an abuse of dominance case can proceed on the merits. This requires a showing of sufficient credible evidence that gives rise to a bona fide belief of a violation. The second check is that private litigants cannot obtain damages. The only relief available through private enforcement is behavioral order and possibly the imposition of a fine on the party found to have contravened the law. However, the significant increase in the potential fines (discussed above), may result in private applicants seeking fines more aggressively than the Commissioner has done historically.

Despite the checks on the private right of access for abuse of dominance cases, the amendments will still shift the landscape for how companies in Canada choose to compete. Competitors may use the private enforcement power as a business tactic and as a means of leverage in negotiations, but those same companies will have to be thoughtful in deciding whether to bring a case because enforcement will be an expensive and time-consuming process (in addition to the fact that Canada has a "loser pays" system that allows the victorious party to recover a portion of its legal expenses).

More changes likely

More changes are expected. The recent amendments in June, as previously stated, were largely seen as housekeeping measures. The current indication is that future proposed amendments will be subjected to more rigorous debate and consultation before passage.

Recently, Senator Howard Weston, former head of the Competition Bureau, initiated a consultation process centered around ensuring Canada's competition policy continues to be relevant in the digital age. That consultation, however, generated dialogue about competition policy more generally. During the consultation, the Bureau made a detailed submission of the changes it would like to see. Those proposals include:

• Elimination or significant modification of the efficiencies defense
• Reversal of proof in concentrative mergers and in ordinary price cases
• Requiring merger remedies to preserve the pre-merger state of competition
• Lower injunction standards
• Broader abuse of dominance provisions
• Increased time for the Bureau to challenge mergers

Some of these proposals will likely merit serious consideration, while others seem to mimic moves from other jurisdictions, including what many believe to be poor policy choices. Policy aside, the recent proposals are likely just the beginning of a series of changes and signals that the Commissioner and others wish to reshape Canada's competition law regime—and possibly radically so.

Practical guidance for businesses

There are a number of steps companies doing business in Canada should take in the wake of these amendments.

• Take proactive steps to ensure compliance with the new laws
• Consider examining existing contract portfolios, especially with the new per se criminal prohibition on no-poach and no-solicit agreements. With the new criminal conduct expansion, companies should contemplate triaging existing agreements and consider whether historical provisions are necessary and in compliance with the amendments.
• Companies with high market shares should reevaluate their practices related to exclusivity and loyalty programs, as well as the use of most-favored nations and similar contract provisions. As these provisions may be increasingly targeted under the amendments.

The overall effect of the recent amendments is that it will be both an interesting and challenging period for competition lawyers and companies doing business in Canada. It will likely take some time to fully appreciate the impact of the amendments—however, the expectation is that the Commissioner and Competition Bureau will look for opportunities to flex their new enforcement powers. Accordingly, companies doing business in Canada should assess how these changes affect their business and take proactive steps to manage any associated compliance and reputational risk.

Further to this insight, the Government of Canada has launched a consultation process for the review of Canada’s competition laws and enforcement framework. This consultation will likely culminate in substantive changes to Canadian competition law. We are actively monitoring and will be participating in the consultation process and have released an insight, More change is coming: Federal government launches Competition Act review and consultation process, that highlights some of the key proposals for reform and some initial comments as to how these may impact companies doing business in Canada.