On November 27, 2020, the Competition Bureau released a statement regarding the application of the Competition Act to no-poaching, wage-fixing and other agreements among competitors relating to the purchase of a product. The Bureau confirmed that such agreements would not result in criminal investigation under the Competition Act. The Bureau's conclusion is based on legal advice it sought from the Department of Justice and the Public Prosecution Service of Canada.
While the Bureau's position is unsurprising and is consistent with the generally-accepted interpretation of the Competition Act, the absence of criminal liability for so-called "buyer cartels" sets Canada apart from many other countries. Most notably, buyer cartels have been subject to increased interest in Canada since 2016, when U.S. antitrust regulators announced that employment-related buy-side agreements could attract criminal prosecution there.
Buy-side agreements will not be assessed under the criminal conspiracy provision of the Competition Act but may be assessed under a civil provision.
- Agreements among competitors relating to the purchase of a product or service (including employment-related no-poaching and wage-fixing agreements) will not be challenged under the criminal conspiracy provision of the Competition Act. Instead, the criminal provision will be reserved for agreements relating to the supply of a product or service. The criminal provision is a per se offense, which does not require proof of any anticompetitive effects and carries the possibility of serious fines and imprisonment.
- Buy-side agreements relating to the purchase of products are still subject to review under the civil competitor collaboration provision in the Act. This provision allows the Competition Tribunal to make an order prohibiting agreements among competitors that are likely to substantially lessen or prevent competition in a market. This civil provision uses a "rule of reason" approach, requiring the Commissioner to establish anticompetitive effects. Unlike the criminal offense, the civil provision does not carry any possibility of fines or monetary penalties.
- Since the civil provision was created in 2010, there have been no decided cases (and only one case that was settled prior to a decision). Because the Bureau must establish that the impugned agreement will lead to anticompetitive effects, it is considerably more burdensome to investigate and enforce.
The non-criminal status of buy-side agreements is intentional, and dates to amendments to the Competition Act in 2009.
- 2019 amendments to the Competition Act created the current two-track enforcement regime by creating separate criminal and civil provisions for agreements among competitors. It is up to the Commissioner of Competition (and the Public Prosecution Service) to decide whether to investigate and prosecute an agreement under the criminal or civil provision. This regime is unlike the United States, where there is a single main federal provision dealing with agreements among competitors and it is up to the judicial branch to decide whether to apply a per se or competitive effects-based standard.
- According to non-binding guidance released by the Competition Bureau, the criminal provision is reserved for "hard-core" cartels (with no countervailing pro-competitive rationale), while the civil provision is intended for agreements that may have pro-competitive benefits and therefore require careful scrutiny.
- Leading up to the amendments to the Competition Act in 2009, there was an acknowledgement in several reports prepared for the government that the Canadian system should encourage innovation and not deter legitimate forms of collaboration (g., strategic alliances among small competitors that benefit competition against larger incumbents). A number of amendments weakened or eliminated criminal exposure for practices that may be anticompetitive but may have offsetting procompetitive effects or rationales (such as the maintenance of resale prices and so-called "predatory pricing").
- While no formal policy rationale was released in connection with the amendments, we expect that the non-criminal status of buy-side agreements is consistent with this theme. Buy-side agreements may have pro-competitive effects in downstream markets (g., by allowing smaller competitors to combine their buying power and offer cost-competitive pricing to their much larger rivals). Accordingly, Parliament opted for non-criminal treatment for such agreements.
The Bureau stated that it will describe its approach to the enforcement of buy-side agreements in greater detail in the forthcoming update to its Competitor Collaboration Guidelines.
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.