For almost 40 years, only agreements between competitors (actual or potential) to rig bids, fix prices, allocate markets or restrict output and certain agreements between federally regulated financial institutions were subject to potential criminal liability under the Competition Act (the Act). Further, outside of mergers, there was no exposure (criminal or civil) for agreements between businesses that are not competitors.
The competition law framework applicable to agreements between competitors and between non-competitors has fundamentally changed. Potential liability, on a criminal or civil basis, is no longer reserved for agreements between competitors. Further, the Commissioner of Competition (the Commissioner) will no longer have a monopoly on enforcing the civil provisions applicable to commercial agreements and the potential consequences of non-compliance are substantial. Businesses need to adapt their compliance approach accordingly.
Criminal liability framework relating to commercial agreements
Until June 2023, criminal liability (including exposure to fines in the discretion of the court,1 imprisonment and private actions for damages) only applied to three types of agreements between competitors — specifically, those that, subject to certain defences including the ancillary restraints defence (ARD)2
- fix, maintain, increase or control the price for the supply of the product (i.e., price-fixing)
- allocate sales, territories, customers or markets for the production or supply of the product (i.e., market allocation)
- fix, maintain, control, prevent, lessen or eliminate the production or supply of the product (i.e., output restriction)
Given the express references to "supply" in the Act, the courts confirmed the Bureau's enforcement position that criminal liability did not apply to buy-side agreements between competitors.
As a result of amendments that came into effect on June 23, 2023, certain agreements between employers, regardless of whether they are competitors, are now subject to the criminal provisions of the Act. Specifically, agreements between unaffiliated employers to fix or control wages or other terms of employment (wage-fixing provision) and not to solicit or hire each other's employees (no-poach provision) have been criminalized. The provisions were, in part, a response to concerns that Canadian competition law was out of step with the enforcement approach being taken in the United States.3
The wage-fixing provision captures agreements between unaffiliated employers to fix, maintain, decrease or control salaries or wages, as well as "terms and conditions of employment", which is interpreted broadly by the Competition Bureau (the Bureau) to include terms and conditions that could affect a person's decision to enter or remain in an employment contract (e.g., job descriptions, per diems, non-monetary compensation, working hours, location and non-compete clauses). The no-poach provision prohibits agreements between unaffiliated employers not to solicit or hire each other's employees, and therefore requires reciprocity.
Importantly, the criminal offences apply to agreements between employers, regardless of whether they compete, and do not require that an agreement have any market impact to be illegal. Moreover, the Bureau's view is that the provisions apply to agreements entered into by employers on or after June 23, 2023, and to conduct following that date, that reaffirms or implements older agreements which contravene the provisions.
The existing ARD is available to shield an agreement between employers from criminal enforcement where a party proves, on a balance of probabilities, that a restraint that would otherwise violate the criminal provisions is (a) ancillary to a broader or separate legitimate agreement that includes the same parties and (b) directly related to, and reasonably necessary for giving effect to, the objective of the broader or separate agreement. For example, the Bureau has stated that it will generally not investigate no-poach agreements that are ancillary to merger transactions, joint ventures, strategic alliances or business arrangements such as franchise agreements and certain service provider-client relationships under the new criminal no-poach provisions, unless the agreements are "clearly broader than necessary in terms of duration or effected employees" or where the broader agreement is a "sham." To determine whether a restraint is ancillary, the Bureau will examine the terms and form of the agreement, the relationship between the restraint and the broader agreement and how the restraint furthers the broader agreement's purpose. The Bureau will consider the restraint's duration, subject matter and geographic scope (e.g., whether it applies to employees unrelated to the collaboration).
An area of increased attention for businesses and industry associations since June 2023 has been information sharing and benchmarking activities that cover employment-related matters. As was previously the case, sharing information relating to matters that are the subject of the criminal conspiracy provisions, such as wages or terms of employment, is not by itself illegal. However, as is the case with sharing competitively sensitive information with downstream competitors, the sharing of information by employers, if not carried out very carefully, carries the risk of being viewed as facilitating or being evidence of an illegal agreement. Accordingly, organizations must take care in how such information is exchanged to avoid the risk of facilitating or suggesting an agreement between employers on the relevant subject matter.
As discussed elsewhere in this Update on the amendments, the Bureau is not the only enforcer of the criminal conspiracy provisions. Private parties have long had a right to bring private actions for damages based on alleged violations of the criminal provisions of the Act. Since these amendments came into force on June 23, 2023, private parties may bring a claim for damages (on an individual or class basis) based on an alleged violation of the new wage-fixing and no-poach provisions. While the judiciary does afford Bureau guidance significant deference, the guidance is not dispositive. In any event, private plaintiffs do not necessarily adopt or rely upon it and may nonetheless choose to test the bounds of the law with the court notwithstanding the Bureau's guidance.
Civil liability framework relating to commercial agreements
Agreements between competitors
As has been the case for some time, agreements between competitors that do not fall within the price-fixing, market allocation or output restriction categories of the criminal conspiracy provisions (or that meet the statutory defences to these provisions) may still be challenged by the Commissioner under the civil agreement provisions of section 90.14 and be subject to a Competition Tribunal (Tribunal) order where they are found likely to result in an SLPC. The types of competitor agreements that may be reviewed under section 90.1 range from strategic alliances, joint ventures, joint development and production agreements, commercialization agreements, research and development agreements, patent settlement agreements and joint procurement/buying group arrangements to standard-setting arrangements, information-sharing and benchmarking agreements. However, as a result of the new amendments, these types of agreements will by subject to challenge not just by the by Bureau but by private litigants as well. In addition, parties to these types of agreements will face increased exposure from a wide array of possible remedies, including potential financial consequences for agreements that are found to be anti-competitive on a civil basis.
Prior to the recent series of amendments, the Tribunal's remedial jurisdiction under section 90.1 was limited to issuing orders prohibiting any person from doing anything under the agreement and orders requiring any person, with that person's consent, to take any other action. The Tribunal did not have the authority to impose financial penalties for breaches of section 90.1. Further, if the Tribunal found that the arrangement was likely to bring about gains in efficiency that would be greater than and offset the substantially adverse competitive effects, and such efficiencies were not otherwise attainable in the absence of the agreement, the Tribunal was foreclosed from making any order or granting any remedy.
In addition, the Commissioner had a monopoly on bringing enforcement action in relation to civil agreements between competitors. (Private parties have had no ability to enforce these provisions of the Act and the Commissioner's enforcement activity under section 90.1 has been very limited.) Overall, the Bureau's enforcement approach, as articulated in its Competitor Collaboration Guidelinesand its actions over the 15-year period since section 90.1 was enacted in 2009, reflect an acknowledgement that non-criminal competitor agreements are efficiency- or innovation-enhancing or are often relatively benign from a competitive impact perspective.
With the recent amendments, civil agreements will need to be considered even more carefully. As discussed below, as of June 20, 2024, the Tribunal's remedial jurisdiction under section 90.1 has been substantially expanded to include the types of remedial orders available under the abuse of dominance provisions including the power to issue, at the most extreme, divestiture orders. Significant administrative monetary penalties can also now be ordered. Since December 15, 2023, parties to agreements also no longer have the benefit of the efficiencies defence (though efficiencies will likely remain relevant to a determination of the anti-competitive effects of any agreement).
Further, commencing June 20, 2025, in a significant change from the current law governing civil agreements between competitors, private litigants will have the ability to challenge such agreements as anti-competitive with leave from the Tribunal, and private litigants will be able to seek remedial orders under section 90.1, as well as monetary relief under the new private access provisions of the Act.
While it will likely take time for the impact of these changes in the law to become apparent, the risk calculus for businesses entering into agreements with one or more of their competitors has fundamentally changed.
Another important question is whether there is scope for private parties to seek leave to bring civil applications in relation to mergers. Although the Bureau still has sole authority to review and challenge mergers under section 92 of the Act, it is conceivable that a merger could be an "agreement or arrangement" within the scope of section 90.1 and therefore be subject to a Tribunal application brought by a private party, assuming leave would be granted. Time will tell whether this is a significant risk for merging parties or only a theoretical concern.
Agreements between persons, regardless of whether they are competitors
Agreements between businesses that do not compete with each other were historically not exposed to any remedy under the Act. Only unilateral conduct — such as price maintenance, refusals to deal/supply, exclusive dealing or other anti-competitive behaviour — by one firm (typically the supplier) towards another firm in the supply chain has been subject to potential civil redress under the Act where the required anti-competitive effects in the relevant market are established.
Beginning December 15, 2024, any agreement between non-competitors (as well as competitors) will be subject to challenge by the Commissioner where (a) a "significant purpose of the agreement or arrangement, or any part of it, is to prevent or lessen competition in any market" and (b) the agreement is likely to result in an SLPC. Further, as of June 20, 2025, such agreements will also be subject to challenge by private parties (with leave of the Tribunal).
The scope and analytical framework for the new provision will require guidance from the Bureau (and likely clarification through jurisprudence, as well). The new provision provides that anti-competitive conduct may be found where "any part of" an agreement has a significant purpose to prevent or lessen competition, with potential implications for common clauses found in commercial agreements (e.g., a lease covenant or exclusivity provisions in licensing agreements). The "significant purpose" concept is new to the Act and the absence of any adjective (such as "substantially" or "adverse") to modify "prevent or lessen competition" is also noteworthy. Clauses limiting competition are common and important elements of commonplace commercial agreements such as leases, licensing agreements, distribution agreements, contract manufacturing agreements and outsourcing agreements, to name just a few. Accordingly, the potential scope of this new provision is very broad and guidance is needed to assure Canadian businesses that the new provision is intended to be reserved for restrictive clauses that lack a reasonable commercial justification.
The implications of the potential breadth of this provision are compounded by the fact that both private parties (having obtained leave) and the Commissioner will be able to apply for remedial orders under the provision and that, where the Tribunal finds that the legal test is satisfied, the Tribunal has the discretion to make the same type of orders as it can under the abuse of dominance provisions. These range from prohibiting enforcement of certain elements of the agreement to granting significant monetary penalties, monetary relief and prescriptive orders, including — at the most extreme — divestiture orders.
In recognition of the substantial expansion of the existing civil provision, the coming ability of private parties to seek remedial orders and the potential severity of the consequences of non-compliance, the Bureau has committed to issuing guidance on its approach to enforcing these new provisions quickly, including in relation to restrictive covenants. While such guidance will be welcome, it will not be binding on the Tribunal and so cannot fully mitigate the risk of strategic litigation by private parties.
Footnotes
1. As of June 2023, the fines available under the criminal conspiracy provisions were amended to remove the $25-million-per-count maximum. Fines are now uncapped and in the complete discretion of the sentencing court.
2. There are several statutory exemptions (e.g., agreements between affiliates) and statutory defences, including the regulated conduct defence and the ancillary restraints defence. Subsection 45(7) codifies the common law defence of regulated conduct, which applies where conduct is authorized or mandated by federal or provincial law.
3. In the United States, such agreements between employers were and are being challenged under U.S. antitrust laws. In contrast, prior to June 2023, the narrow drafting of the criminal conspiracy provision clearly excluded agreements regarding the purchase of an input, including labour. Accordingly, section 45(1.1) was introduced to address this perceived gap in the legislation.
4. Agreements between competitors may also be reviewed under the abuse of dominance provisions of section 79 on a joint abuse theory of harm (refer to the section on abuse of dominance of this guide). Where the Commissioner or private litigant is seeking more than a prohibition order, given that the legal test to be met under section 79 remains more onerous than that under section 90.1 and there is symmetry in the remedies available under these provisions, it is likely that competitor agreements that are not conspiracies or mergers will generally be examined and challenged under section 90.1. However, if the only remedy being sought in respect of an arrangement between two or more major competitors is a prohibition order, then it may be less burdensome to pursue this remedy under section 79 as the Commissioner or private litigant need only to establish a practice of anti-competitive acts (i.e., they do not need to establish any adverse competitive effect).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.