Cartels, Agreements and Collaboration – Where Are We Now?
Recognizing the critical role of the Competition Act (the “Act”) in promoting dynamic and fair markets, Canada’s Minister of Innovation, Science and Industry, the Honourable François-Philippe Champagne, announced on February 7, 2022 that he would carefully consider ways to modernize and improve its operation. Following this announcement, significant competition law reform has taken place in Canada, including the passage of Bill C-19 on June 23, 2022, the passage of Bill C-56 on December 15, 2023 and the passage of Bill C-59 on June 20, 2024 (collectively, the “Bills”).
The Bills include amendments that touch on virtually all facets of competition policy in Canada, including, without limitation, merger review, abuse of dominance, criminal cartels, competitor collaborations, deceptive marketing, private rights of action and market studies. All provisions of the Bills are now in force, with the exception of a select few amendments which will come into force in 2024 and 2025.
According to the Government’s 2023 Fall Economic Statement, these amendments are “generational changes” that “will help bring Canada into alignment with international best practices to ensure that our marketplaces promote fairness, affordability, and innovation”. We would go further and describe these amendments as the most significant changes to the Act in almost 40 years – changes that fundamentally alter and transform the competition law landscape in Canada!
This blog post summarizes in one place the key changes made to criminal cartel and civil collaboration provisions in the Act, including, most importantly, the introduction of a criminal provision prohibiting wage-fixing agreements and no-poaching agreements between unaffiliated employers and the extension of the civil collaboration provisions to past agreements and, in certain cases, to agreements between non-competitors. These changes will, in our view, have a resounding and far-reaching impact on companies doing business in Canada, including in the context of many common types of commercial agreements.
Criminal Cartel Provisions
Bill C-19 added a criminal cartel provision prohibiting wage-fixing and no-poaching agreements between unaffiliated employers and increased the fines available under the criminal cartel provisions. Each of these changes is discussed below.
(a) Wage-Fixing/No-Poaching Agreement Offence
Effective June 23, 2023, Bill C-19 added subsection 45(1.1) to the Act, which prohibits agreements between unaffiliated employers to “fix, maintain, decrease or control salaries, wages or terms and conditions of employment” and “not solicit or hire employees”. As with the existing criminal cartel provisions, this provision allows wage-fixing and no-poaching agreements to be inferred from circumstantial evidence and includes both an ancillary restraints defence and a regulated conduct defence. This change was intended to align Canada’s approach to these types of agreements with the highly controversial approach adopted by the United States Department of Justice – an approach that has not been fully embraced by courts in the United States.
Importantly, on May 30, 2023, the Competition Bureau (the “Bureau”) released guidelines that describe its approach to the interpretation and application of this provision (the “Guidelines”). While a prior blog post discusses the Guidelines in detail, in our view it is worth emphasizing the following points:
- Naked Restraints versus Legitimate Collaborations: The provision is directed at “naked restraints” on competition, namely restraints on wages or job mobility that are not implemented to further a legitimate collaboration, strategic alliance or joint venture. Restraints that further a legitimate collaboration, strategic alliance or joint venture may be reviewed by the Bureau under the civil collaboration provisions, which only apply to agreements that are likely to result in a substantial prevention or lessening of competition (an “SPLC”). This approach echoes the Bureau’s traditional two-step approach when deciding whether to review an agreement under the criminal cartel provisions (section 45) or the civil collaboration provisions (section 90.1).
- Scope of Employers: The provision applies to agreements between “unaffiliated employers”, regardless of whether they compete in the supply of a product or service. In this regard, as indicated in the Guidelines, “employers” include not only businesses, but also directors, officers, agents and employees, such as human resource professionals. Accordingly, and by way of example, the Bureau views agreements between an officer of one company and a director of another company as captured. In that case, each of the individuals and companies could, according to the Bureau, potentially be subject to prosecution under the provision.
- Wage-Fixing Agreements: Agreements to fix, maintain, decrease or control salaries, wages and other terms and conditions of employment come within the scope of the provision. Significantly, the Guidelines note that “terms and conditions” include the responsibilities, benefits and policies associated with a job, including, for example, job descriptions, allowances (such as per diem and mileage reimbursements), non-monetary compensation, working hours, location and non-compete clauses, and other directives that may restrict an individual’s job opportunities. That said, the Guidelines make clear that the Bureau’s enforcement generally is limited to those “terms and conditions” that could affect a person’s decision to enter into or remain in an employment contract.
- No-Poaching Agreements: Consistent with the language in the provision, the no-poach offence only applies where unaffiliated employers agree to not solicit or hire “each other’s” employees. Issues will not arise in situations where only one employer agrees not to poach another employer’s employees – something that is definitely relevant in the context of purchase and sale transactions.
Employers should ensure that they are not involved in practices with other unaffiliated employers (whether or not those employers are competing businesses) that may be considered (1) wage-fixing or no-poach agreements/arrangements, or (2) improper information sharing or other practices that could be perceived as facilitating such agreements/arrangements. The need for businesses to comply with these provisions cannot be overstated, as employers that breach them could face significant penalties. They will also be subject to damages claims (primarily in the form of class actions) from those who allegedly suffered damage as a result of an alleged illegal agreement.
(b) Increased Fines
Bill C-19 also increased available fines under the criminal cartel provisions from a maximum of $25 million to an amount “in the discretion of the court”. As a result, a person found to have breached these provisions (including the new provision prohibiting wage-fixing agreements and no-poaching agreements) could face fines in the discretion of the court and/or imprisonment for a term of up to 14 years. These are some of the highest penalties for cartel conduct anywhere in the world!
Civil Collaboration Provisions
Historically, section 90.1 of the Act (the civil competitor collaboration provision) has allowed the Tribunal to issue certain remedies in respect of existing or proposed agreements between competitors or potential competitors that are likely to result in an SPLC. However, Bills C-56 and C-59 have significantly expanded the scope of this provision and increased the remedies available to the Tribunal.
(a) Collaborations Between Non-Competitors
Effective December 15, 2024, section 90.1 of the Act will extend to collaborations among parties that are not competitors, provided that a “significant purpose” of the collaboration, or any part of it, is to prevent or lessen competition in any market. While this change was motivated by restrictive covenants in the retail grocery industry that limit new entrants’ ability to lease premises near incumbent retail locations, it could potentially apply to any commercial agreement – including agreements between a firm and its customers or suppliers. That said, the Bureau still has the burden of showing that a given agreement or arrangement is likely to result in an SPLC.
It bears noting that many agreements between firms and customers/suppliers can already be reviewed under other provisions of the Act that apply to “vertical” collaborations. However, these provisions require, in many cases, several complex elements to be made out. As such, the government may be signalling that it is looking for a “simpler” way to regulate vertical relationships – and that, in turn, it intends for closer scrutiny to be given to such collaborations in the future.
Going forward, businesses will need to be cognizant of any aspects of their contracting practices with customers and suppliers which could potentially be considered (or perceived) as intended to prevent or lessen competition and whether those practices in fact do, or are likely to, result in an SPLC.
(b) Past Agreements
Historically, section 90.1 of the Act has applied only to “existing or proposed” agreements. The Bureau and other commentators raised concerns with this approach. For example, in its submission in response to the Wetston consultation, the Bureau stated as follows:
… this [approach] leaves no recourse under the Act for agreements that existed in the past, but are no longer in effect. This temporal framing creates uncertainty over whether parties to an agreement could merely terminate any agreement that draws the Commissioner’s scrutiny, and then re-instate it at a future time.
Similarly, section 90.1 provides relief only for harm to competition that is presently happening, or is likely to happen in the future. It does not provide the power to address harm that has happened in the past, but has since ceased. This stands in contrast to the abuse of dominance provision in section 79, which provides relief for anti-competitive behaviour that has resulted in past harm.
To address these concerns, Bill C-59 has expanded the scope of section 90.1 of the Act to capture past conduct, provided that such conduct has occurred in the last three years. Given this change, parties will not longer be able to resolve potential concerns under section 90.1 of the Act simply by terminating or withdrawing from potentially anticompetitive agreements. This re-enforces the need for parties – whether or not competitors – to carefully assess their agreements with a view to determining whether issues could arise under the Act, including the civil collaboration provisions.
(c) Efficiencies Defence
Subsection 90.1(4) of the Act currently prevents the Tribunal from making an order in respect of an otherwise anticompetitive agreement where it finds that the agreement has brought about or is likely to bring about gains in efficiency that will be greater than, and will offset, the effects of any prevention or lessening of competition that will result or is likely to result from the agreement. Effective December 15, 2024, this efficiencies defence will be repealed. As such, businesses will need to be cognizant that, after December 15, 2024, efficiencies originating from agreements will not be sufficient to save an agreement which would otherwise be found to be harmful to competition.
Importantly, Bill C-56 did not add efficiencies as a factor in subsection 90.1(2) of the Act. That said, consistent with the Commissioner’s approach to the treatment of efficiencies in the merger context, we expect that the Commissioner will likely continue to be open to considering efficiencies after December 15, 2024. However, it remains to be seen what types of efficiencies the Commissioner may be willing to consider and how much weight will given to any such efficiencies. In our view, efficiencies should continue to play an important role when evaluating collaborations.
(d) Remedies
Prior to the passage of Bill C-59, the remedies available under section 90.1 were limited to a prohibition order or any other order on consent of the parties. However, this is no longer the case, as Bill C-59 has expanded the scope of remedies available under section 90.1 to include administrative monetary penalties (“AMPs”), the divestiture of assets or shares, or any other action that is reasonable and necessary to overcome the effects of the agreement or arrangement. For example, the Tribunal is now permitted to order the payment AMPs not exceeding the greater of (1) $10 million ($15 million on a subsequent order) or (2) three times the value of the benefit derived from the agreement or arrangement, or, if that amount cannot be reasonably determined, 3% of the person’s annual worldwide gross revenues. This is similar to the remedies currently available elsewhere in the Act, such as under the abuse of dominance provisions, and is likely to result in more frequent reliance on section 90.1 by the Commissioner and private parties.
If you have questions about the ongoing criminal cartel or civil collaboration provisions, you can reach out to any member of Fasken’s Competition, Marketing & Foreign Investment group. Our group has significant experience advising clients on all aspects of Canadian competition law.
The information and guidance provided in this blog post does not constitute legal advice and should not be relied on as such. If legal advice is required, please contact a member Fasken’s Competition, Marketing & Foreign Investment group.
