The Canadian Competition Bureau (the "Bureau") issued much welcomed guidance on Friday to confirm what many have said to date, namely that no-poaching,1 wage-fixing2 and other buy-side agreements fall outside the scope of the criminal conspiracy provision (section 45) of the Competition Act (the "Act"). This guidance comes in response to significant interest from politicians and the legal and business communities regarding the treatment of these types of agreements in light of the position taken by the US Justice Department's Antitrust Division and the Federal Trade Commission (outlined below).
Section 45 of the Act prohibits agreements between competitors to fix prices, allocate markets or limit the supply of a product. Such agreements are per se unlawful (i.e. they are deemed illegal without proof of anticompetitive effects). Violations may be subject to significant fines, imprisonment and private enforcement (including class actions).
Section 45 of the Act was amended in 2009 to establish a per se criminal offence for "naked" restraints on competition, namely, agreements between competitors to fix prices, allocate markets/customers, or restrict output. These types of agreements were prohibited on a per se basis (without any need to assess competitive impact) because they are viewed as inherently anti-competitive, without any prospect of pro-competitive effects. The former provision required a competitive effects analysis and expressly covered, among other things, agreements between competitors to prevent or lessen competition unduly in the "purchase" of a product. The amended per se criminal conspiracy provision omits any reference to agreements relating to the purchase of products.
Coincident with the amendments to the criminal conspiracy provision, a civil anti-competitive agreements provision - section 90.1 – was added to the Act. Section 90.1 applies to agreements between competitors that are resulting in, or are likely to result in, a substantial lessening or prevention of competition. The Commissioner of Competition (the "Commissioner") can seek to enforce this provision by way of application to the Competition Tribunal (the "Tribunal"). The remedy for a breach of section 90.1 is a prohibition order. Civil damages are only available for breach of such an order. In contrast, breach of section 45 can result in criminal sanctions in the form of fines and/or imprisonment, as well as civil actions for damages, including class action lawsuits.
In the initial period following the 2009 amendments to the Act, it was generally understood that the amended criminal conspiracy provision had no application to buy-side agreements, which may have pro-competitive effects. For instance, competitors can enter into buying group arrangements in order to lower their input costs, which could translate into lower prices for their customers. Consistent with this, the Bureau's Competitor Collaboration Guidelines issued in 2009, state that section 45 applies to the price for the supply of a product, not for the purchase of a product.
The US Perspective
The US Justice Department's Antitrust Division and the Federal Trade Commission have issued guidance indicating that naked no-poaching or wage-fixing agreements that are unrelated or unnecessary to a larger legitimate collaboration between employers will be criminally investigated and prosecuted as hardcore cartel conduct.
The Canadian Perspective
The Bureau has clarified that no poach, wage-fixing or other buy-side agreements will not be subject to criminal sanction due to the specific language in Canada's cartel laws. Section 45 of the Act only applies to supply-side agreements due to the removal of the word "purchase" from section 45 of the Act in 2009. The Bureau reached this decision based on legal advice from the Department of Justice and the Public Prosecution Service of Canada that the removal of "purchase" from section 45 limited application of the provision to supply-side agreements.
However, the Bureau has indicated that it may assess buy-side agreements such as no-poach and wage-fixing agreements under section 90.1 of the Act, which authorizes the Tribunal, on application by the Commissioner to make prohibition orders in connection with agreements between competitors (including employers) that substantially lessen or prevent competition. The Bureau noted that it intends to provide further guidance on the treatment of buy-side agreements under section 90.1 in forthcoming updates to its Competitor Collaboration Guidelines.
As noted above, unlike section 45, violations of section 90.1 cannot result in fines, imprisonment, private enforcement or damages awards.
Footnotes
1. A "no-poach agreement" is an agreement with another employer(s) not to solicit another company's employees.
2. A "wage fixing agreement" is an agreement with another employer(s) to limit wages, salaries or other employee benefits.
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