Canada’s Competition Act: No Poach, No Problem? A Qualified Yes.

By The Competition/Antitrust & Foreign Investment Group of McCarthy Tétrault LLP

Canada’s Competition Bureau (Bureau) has issued important guidance on the treatment of buyer agreements — including no-poach and wage-fixing agreements among employers — under the Competition Act (Act). Importantly, the Bureau takes the position — with which we agree — that such agreements are not captured by the criminal cartel provisions of the Act, although they may be reviewed and remedied under the civil competitor agreements provisions.

Different Approaches in Canada and the United States

The rise of antitrust enforcement against no-poach and wage-fixing agreements in the United States, since the antitrust agencies there issued guidelines on this issue in 2016, clearly impelled the Bureau to issue its statement on the parallel approach to these issues in Canada.

Notably, the U.S. guidelines emphasized that explicit no-poach agreements among employers are per se illegal under the Sherman Act and that criminal penalties may be sought against future infractions. This caught the attention of state-level attorneys general, resulting in high-profile investigations into the use of no-poach agreements by fast food franchises, which then gave rise to a number of civil actions brought by employees against the franchisors and franchisees who entered into no-poach agreements.

Indeed, U.S. enforcers have challenged buy-side cartel agreements for more than a century, developing significant jurisprudence in the field.[1] More recently, and predating the 2016 guidelines, the issue of no-poach agreements became headline news in 2009 when the U.S. Department of Justice investigated allegations that several prominent high-tech companies had entered into a series of bilateral agreements not to “cold-call” each other’s employees with solicitations for employment.[2]

Conversely, and recognizing the substantive differences between U.S. and Canadian cartel laws, the Bureau’s position is that buy-side agreements are not prohibited under the criminal cartel provisions in Canada. This analysis, which is discussed in greater detail below, will come as welcome news for employers and franchise operations that rely on clauses like these to protect investments they make in hiring and training their employees.

A Canadian Standard That Reflects Canadian Law

In Canada, the longstanding view in the cartel defence Bar has been that buy-side agreements were outside the scope of section 45 of the Act, the primary cartel offence. The Bureau’s new guidance is consistent with that view.

Notably, section 45 of the Act expressly provides that it only applies to agreements among competitors (or potential competitors) to fix prices, allocate customers or markets, or limit output for “the production or supply of” a product or service. Thus, only conduct fitting within these categories, and relating to downstream production or supply — rather than upstream purchasing — is prohibited.

Section 45 of the Act is the product of a major redesign of Canadian cartel law, carried out over several years in the late 1990s and 2000s, and culminating in significant legislative reforms in 2009. The issue of buyer agreements was well-known to Parliament at the time of these amendments, as it had been considered in reports commissioned by the Bureau, and included in a Private Member’s Bill (which was not adopted).[3] And yet the 2009 amendments did not address buy-side conduct. This was a deliberate and notable omission, as the prior version of section 45 did, at least in theory, apply to joint purchasing conduct.[4]

Appropriately, the Bureau’s new guidance reflects this fact. It notes that:

While the Competition Bureau views [no-poach and wage-fixing] buy-side agreements between competitors as raising serious competition issues, the 2009 amendments to the Competition Act included the removal of the word “purchase” from section 45, limiting its scope to supply-side agreements.

This is the correct outcome, and dovetails well with the Bureau’s 2009 Competitor Collaboration Guidelines, which expressly noted that “joint purchasing agreements – even those between firms

that compete in respect of the purchase of products – are not prohibited by section 45.”[5]

However, the Bureau’s new guidance leaves open the possibility that such agreements may be investigated and remedied under the civil competitor agreements provisions of the Act.

Potential Civil Enforcement in Canada

Looking forward, the Bureau may proceed against no-poach or other buy-side agreements under section 90.1 of the Act, which is a civil prohibition against competitor collaborations that are “likely to prevent or lessen competition substantially”. Importantly, the consequences of such an investigation are much less severe than the consequences of a criminal conviction under section 45, as the remedies are limited to behavioural orders correcting the conduct. There is no risk of imprisonment or fines (as under the criminal provisions), or of administrative monetary penalties (as under certain other civil provisions of the Act).

As the pre-2016 U.S. investigations demonstrate, however, such inquiries can have significant harmful reputational effects, and may prompt civil claims. Joint buying conduct therefore remains an issue on which qualified competition law advice should be sought.

 

[1] Among the earlier notable decisions are United States v. Swift & Co., 196 U.S. 375 (1905) (which involved a conspiracy among meat packers to reduce the price they paid for cattle) and Mandeville Island Farms, Inc. v. American Crystal Sugar Co., 334 U.S. 219 (1948) (which involved an agreement among three sugar refiners to pay uniform prices for California beets).

[2] The matter was settled without the companies admitting any wrongdoing; United States v. Adobe Systems, et al., Case No. 1:10-cv-01629 (D.D.C. Sept. 24, 2010).

[3] Bill C-472, An Act to amend the Competition Act (conspiracy agreements and right to make private applications), the Competition Tribunal Act (costs and summary dispositions) and the Criminal Code as a consequence, First Reading 6 April 2000, 2d Sess., 36th Parl., 48-49 Elizabeth II, 1999-2000.

[4] Former section 45(1)(c) prohibited agreements to “prevent or lessen, unduly, competition in the production, manufacture, purchase, barter, sale, storage, rental, transportation or supply of a product […]” (emphasis added).

[5] Competition Bureau, Competitor Collaboration Guidelines (23 December 2009), at 11, 33, and 44.