The Trudeau government’s plan for a quick and easy win on competition law reform owing to public pressure to tame the large digital platforms will result in significant changes to the Competition Act being pushed through with little to no scrutiny because there is not enough time to properly consult and debate the proposed reforms under the Budget Implementation Act (“BIA”) process. While Justin Trudeau campaigned to control the use of omnibus budget bills, he continues their use even for significant amendments to economic framework legislation.
While competition law reform in Canada is long overdue, the inability for Canadians to properly scrutinize and alter the course of major legislative changes buried in the omnibus budget bill renders the bill reckless and anti-democratic. It is therefore not surprising that the Conservatives have asked for further study of the changes to the Competition Act that would, among other things, expand the definition of anti-competitive acts, increase the investigative powers of the Commissioner of Competition and potentially expose companies to significantly greater penalties. However, in the context of a minority government, voting on a budget bill is considered a confidence vote, which leaves opposition parties with the Hobson’s choice of either voting in favor of the bill or forcing an election.
The proposed amendments would expand the scope of the Competition Act, a move that follows a global trend of stricter penalties and stronger enforcement of competition laws. However, there are serious flaws with the proposed amendments, which may have a significant impact on businesses and the Canadian economy. The first concerning proposed amendment would add a new per se criminal provision prohibiting so-called wage-fixing and no-poach agreements between unaffiliated employers. Employers found to have breached this provision would face significant penalties, including fines in the discretion of the court, imprisonment of up to 14 years, or both – even if the agreement has no impact whatsoever on competition in Canada. However, under the current regime, the Competition Bureau can already take enforcement action against these types of agreements under a civil provision that prohibits agreements between competitors. A process that considers and takes into account the actual competitive impact of these types of agreements makes sense, particularly since the economic literature indicates that wage-fixing and no-poach agreements can result in positive economic effects, such as reduced costs for employers and lower prices for end-use consumers. In fact, some economists have also suggested that, at a macroeconomic level, wage-fixing agreements may actually lead to greater labor market stability for both low and highly skilled workers.
In addition to the significant penalties included in the Competition Act, unaffiliated employers that enter into wage-fixing or no-poach agreements would be subject to private actions (including class actions) for damages – even where such agreements may result in positive economic effects. As private plaintiffs are not bound by “prosecutorial discretion”, this could potentially result in a proliferation of frivolous, time- and expensive class actions challenging conduct that may not be anti-competitive. The serious consequences that could arise from the introduction of this new provision showcases the risks of minimal debate on the actual impact of these types of agreements and whether the federal government has the jurisdiction to legislate on labor matters, an area that many have argued falls under provincial jurisdiction in Canada, by invoking its criminal law jurisdiction. It is worth noting that agreements among employers with respect to collective bargaining are already expressly excluded from the application of the Competition Act.
A second proposed amendment would significantly increase the administrative monetary penalties (“AMPs”) available for violations of the abuse of dominance and deceptive marketing practices provisions. This amendment appears to be driven by the perception that Canada’s monetary penalties are significantly out of step with international counterparts. The new legislation would allow for AMPs of up to 3% of the company’s global revenues. This would potentially expose large international companies in Canada to significantly greater penalties that are not proportional to the potentially pro-competitive conduct in question and appear to be a significant over-correction. Tying penalties to global revenues could lead to unintended harmful consequences for the Canadian economy and its participants, including deterring international players from investing or participating in Canada’s relatively small market, or even encouraging companies to leave. It could also harm Canadian multinationals that have grown successful internationally by exposing their international revenues to an AMP for conduct in Canada. Parliament should avoid introducing penalties that could reasonably be viewed as punitive which may be offside procedural protections against punitive fines enshrined under the Charter of Rights and Freedoms.
In connection with abuse of dominance, exposure to such extreme penalties for conduct that is not susceptible to a bright-line test threatens to deter companies from engaging in what would be pro-competitive activity out of fear of running afoul of these provisions. It is often very difficult to assess ex ante if conduct is (or may be considered) anti-competitive. For these reasons, significant AMPs were not historically part of the Competition Act and certainly not at the punitive levels that are currently being proposed. Moreover, the proposed amendments would expand rights of private access to the Competition Tribunal to abuse of dominance claims, which may also expose companies to these significant AMPs.
Another of the proposed amendments would add or expand on the factors that the government may consider under the abuse of dominance, merger and non-criminal competitor collaboration provisions when determining whether a practice, merger or agreement prevents or lessens competition substantial. Many of these factors (which the Competition Tribunal can already consider under the existing framework) are particularly relevant in the context of the “digital economy,” including the existence of network effects, the impact on non-price competition (such as quality, choice and consumer privacy) and the entrenchment of the market position of leading incumbents. The proposed amendments also codify a definition of abuse that exists in the current jurisprudence.
Overall, these proposed amendments are curiously vague, and have triggered significant concerns from industry. For example, the proposed amendments seek to clarify that “softening of competition” and any “discriminatory response to an actual or potential competitor” are violations of the Competition Act. This broad language could capture any competitive response to a competitor, including a price decrease to customers, and could severely chill competition on the merits. The government should resist implementing any broad restrictions or vague definitional criteria on how “digital platforms” are structured to avoid deleterious impacts on innovation and competition. Failure to adequately define key terms will inject variability and uncertainty into the administration and enforcement of the law, to the potential detriment of businesses and consumers alike.
These noted concerns with only three of the proposed amendments should give the government sufficient reason for pause. There are also serious concerns with some of the other Competition Act amendments contained in the BIA as noted by the CBA Competition and Foreign Investment Law Section. The Minister of Innovation, Science and Industry, responsible for competition policy, had stated his intentions to carefully improve the Competition Act through a two-phase process while noting that “Canadians are rightly concerned about the rising cost of living, corporate concentration and a fair chance at participating in the economy”. It is strongly recommended that the government halt implementation of the BIA competition law amendments and add them to the planned comprehensive modernization study and consultations on the role and functioning of the Competition Actwith a view to fixing any shortcomings that could result in unintended consequences that harm Canadians and the Canadian economy.
 Canadian Bar Association, Competition Law and Foreign Investment Review and Labor and Employment Sections, Letter to The Honorable Pamela Wallin (18 May 2022), available online at www.cba.org/CMSPages/GetFile.aspx?guid=b9ef53d3-24de-41d2 -ab61-1e9ee134054a.