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Conspiracies and other agreements that may harm competition
Video length: 6 minutes, 16 seconds
In this section
The basics
Generally, competitors are parties that compete, or are likely to compete, to provide products or services. The Competition Act does not allow some agreements between competitors which cause significant harm to competition. At the Bureau, we investigate agreements or arrangements between competitors to determine if any competition laws were broken. Violations can be either criminal or civil.
Agreements that fall under the Competition Act’s criminal provisions
Agreements that fall under the Competition Act’s criminal provisions
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Description of image – Agreements that fall under the Competition Act’s criminal provisions
The image is a flowchart that breaks down some key types of conspiracies that are illegal. These are: Price fixing, Market allocation, and supply restriction.
Price fixing
Occurs when two or more competitors fix the price of goods and/or services.
Market Allocation
Occurs when two or more competitors divide markets, customers or territories.
Supply Restriction
Occurs when two or more competitors limit the amount of goods and/or services in the market.
By law, conspiracies to fix prices, allocate markets or restrict supply are crimes.
Learn more about these common types of illegal agreements that hinder competition.
Agreements that may fall under the Competition Act’s civil provisions
Some agreements might not break criminal laws, but they could still harm competition. In these cases, we can still review the agreement under the civil provisions of the Act.
Examples of such agreements include:
- commercialization agreements
- information sharing agreements
- research and development agreements
- joint production agreements
- joint purchasing agreements
Learn more about agreements that may harm competition.
Penalties
If a business or an individual breaks the law, they could face any of the following penalties or a combination of them:
Conspiracies
- fines
- criminal record
- jail time for individuals
Other agreements that may harm competition
- civil court order (e.g., prohibition from doing anything under the agreement)
If you’re a small business . . .
Competition law and compliance are important for all businesses, no matter their size, risk profile, industry or location of operation. They’re not only for large organizations. Indeed, many Bureau investigations related to conspiracies involve small businesses and their people.
Credible and effective compliance programs do not have to be costly or complicated. Even simple steps can ensure that your compliance program runs effectively. You need to make sure that your organization is committed to doing the right thing.
See our resources made specifically for you:
Bureau’s consideration of a compliance program
Determining how we resolve a criminal matter
When determining how to address criminal conduct, we will consider the strength of the evidence and determine whether we should recommend prosecution or pursue other forms of resolution like voluntary compliance. In this context, we will take into account the party’s conduct, including whether the business had a pre-existing credible and effective compliance program.
If we find evidence of an offence, we may make a recommendation to the Public Prosecution Service of Canada (PPSC). The PPSC is independent of the Bureau and has discretion over whether or not to prosecute the case.
Criminal matters: compliance programs and immunity or leniency applications
A credible and effective compliance program could help you uncover a possible crime at an early stage and facilitate an application under our Immunity and Leniency Programs. Most consensual resolutions in criminal matters happen as part of the Bureau’s Immunity and Leniency programs.
The treatment of all applications depends on the relevant facts of the case.
Immunity applications
- Only the first individual or business to report misconduct can be eligible for immunity under our Immunity Program.
- A compliance program might help you uncover misconduct sooner and put you in a better position to qualify for immunity from prosecution.
Leniency applications: Mitigating factors
- Even if immunity is not available, having a compliance program may help you when it comes to sentencing.
- If you are a leniency applicant and we are satisfied that you had a credible and effective compliance program in place when the misconduct occurred, we will include it in our recommendation to the PPSC as a mitigating factor.
Leniency applications: Aggravating circumstances
- If during our investigation, we see signs that your program is not credible or effective, we will be skeptical about your commitment to compliance.
- Using a compliance program to cover up or promote misconduct will weaken your application for leniency. So will lying about your program.
- Here are some examples of aggravating circumstances:
- Senior management cover-up. If senior management attempts to implement a compliance program while they also intend to break the law, we will not consider the program to be either credible or effective and we might consider this as an aggravating factor in our recommendation to the PPSC.
- Rogue employee. If an individual intentionally broke the law despite the existence of a compliance program, we might consider this as an aggravating factor in our recommendation to the PPSC in relation to that individual.
- Exception. Despite an individual’s involvement in a violation, we might still give consideration to your business’ compliance program if it shows all of the following:
- the business applied the principles in the Bureau’s guidance to prevent misconduct,
- the individual(s) in question acted alone, and
- the perpetrator(s) hid the conduct from others in the business.
Compliance program review process for leniency applicants
Compliance program review process for leniency applicants
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Description of image – Compliance program review process for leniency applicants
The image explains the process of review of compliance programs for leniency applicants.
First, the Compliance Unit of the Bureau reviews the compliance program to determine if the program is credible and effective. After reviewing the compliance program, the Compliance Unit will make a recommendation to the Deputy Commissioner of Competition (Cartels Directorate).
The Deputy Commissioner of Competition (Cartels Directorate) of the Bureau, will review the recommendation of the Compliance Unit and further make leniency recommendations to PPSC.
The PPSC has the discretion to accept or reject the Bureau’s recommendation.
When a leniency applicant asks us to consider its compliance program, our Compliance Unit reviews it to determine if the program applies the principles covered in Core principles of a credible and effective compliance program.
The burden is on the applicant to prove that its program effectively applies these principles.
What information do we look at?
The Compliance Unit may consider a range of relevant information, including
- information and evidence gathered by the enforcement team throughout their investigation;
- all relevant information that speaks to the credibility and effectiveness of the applicant’s compliance measures;
- business records and information from the business’ staff.
Access to this information is voluntary and the leniency applicant may decide whether or not to provide it. If the Compliance Unit lacks information, it might not be able to make a positive recommendation.
When do we need it?
The Bureau needs this information before we make our recommendation on leniency to the PPSC. In particular, the Compliance Unit will need timely access to information before making its recommendation to the Deputy Commissioner.
Compliance programs and voluntary or negotiated resolutions
Generally, we encourage voluntary compliance. We often try to reach a negotiated settlement. We will consider information and evidence that we see throughout our investigation that speaks to the credibility and effectiveness of your compliance measures.
Regardless of whether the matter is criminal or civil, you do not need to have a compliance program in place to be able to settle a matter with us or the PPSC. However, as part of a settlement negotiation:
- if you have one, we (i.e., the Bureau or the PPSC) may need you to review and improve it;
- if you do not have one, we may need you to build a credible and effective compliance program based on the Bureau’s guidance on Core principles of a credible and effective compliance program.
Key takeaways
Be aware of the risks
Conspiracies
- Have you agreed with your competitor, formally or as an informal understanding, to do any of the following:
- determine the pricing of products/services
- choose the products/services you should sell
- determine the geographic market where you should carry on business
- allocate customers in any manner
- change industry production, capacity or inventories
- prevent other businesses from competing in a particular product or geographical market?
- Have you had a discussion with your competitor on any of the above topics in any “off-the-record” settings? On social media? In any other place?
- Do your employees move frequently between competing businesses?
- Are you sharing competitively sensitive information with competitors?
- Why are you sharing this information? Do you have a lawful reason?
- Could this information affect another competitor’s market behaviour?
- Can you prove that your company has taken its decisions unilaterally?
Other agreements that could harm competition
- Have you made any comments that could be viewed as signalling to your competitors any intentions or expectations regarding price, trade terms or other elements of competition?
- Is your customer, supplier or joint venture partner also your competitor?
- Is the agreement likely to cause prices to rise, or reduce the choices available to consumers?
If in doubt of any of these situations, review our detailed guidance on common types of illegal agreements that hinder competition, other agreements that may harm competition or talk to your lawyer or compliance officer.
Use these strategies to mitigate your risks
Interactions with third parties
- Encourage or require smaller companies that want to act as your sales agent to implement a compliance program.
- Seek legal advice before contacting or entering into agreements with competitors, or communicating anything that could look like signals to competitors about pricing, trade terms or any other element of competition.
- Consider including a lawyer in meetings with competitors to provide guidance.
- If any improper discussions arise, your representatives should leave the meeting and have their departure recorded. Such incidents should be reported immediately to your compliance officer or lawyer.
Trade association activities
- Participate in trade association activities only if the association implements a credible and effective compliance program.
- Document all contact with competitors and keep proper records. If your external or trade association activities could create an appearance of collusion, make the necessary changes to avoid that.
- Create a clear written agenda when meeting with competitors — do not stray from the agenda.
- Check out our Tips for members of a trade association.
Internal activities
- Make all pricing decisions internally at your company without discussing them with your competitors.
- Avoid making price announcements or price change announcements too far in advance.
- Contact the Bureau if you encounter or suspect price-fixing, market allocation or output restrictions.
Case studies
Case study 1 – Conspiracy
Let’s look at two hypothetical scenarios that compare a positive and a negative approach to compliance in the case of a conspiracy.
Background
Widget World is a large, publicly traded Canadian manufacturing company.
Ten years ago, Widget World established a strong compliance program that included competition law. The company took a broad range of management steps:
- it trained employees on compliance
- made the program part of the incentive system
- established a strong, independent compliance officer who reported to the board.
These actions made compliance part of the company’s corporate culture. It started a compliance “speak-up” system and used screening and data analytics to search for patterns that might suggest collusion. The company disciplined employees for violating the program, including managers who were negligent in taking steps to prevent violations.
Five years ago, during a market downturn, there was a shake-up of ownership and management.
Positive approach to compliance
New owners promoted compliance
There was strong pressure to increase sales, cut costs and boost profitability. Still, the new owners and management team continued to emphasize compliance with the company’s employees.
Widget World consistently emphasized the importance of compliance to all employees and conducted regular training, audits and risk assessments.
Negative approach to compliance
New owners focused on profits at all cost
The new owners and management team shifted the company’s priorities toward cutting red tape and boosting profitability above all else.
Widget World slashed training resources for compliance and stopped in-person sessions. The company removed the employee “speak-up” system. It also transferred oversight of the company’s compliance program to a junior legal staffer with no compliance experience.
An invitation to collude
Two years ago, Widget World’s regional sales leaders attended a trade conference. They were approached by their two main competitors, Azure Manufacturing and Zenith Widgets.
Over a late-night meeting, Azure and Zenith asked Widget World to agree to raise prices across the industry and not go after each other’s clients.
Positive approach to compliance
Widget World tried to steer clear of misconduct
Thanks to Widget World’s training and emphasis on compliance, its team knew that this was a clear violation of competition law. Widget World’s team declined the offer and also informed the company’s legal and compliance departments about the conversation.
Widget World continued to obey competition law and made sure to document any suspicious price-fixing behaviour it saw in the industry.
Rogue employee reached out to competitors
Despite complying with competition law and having a positive approach to compliance, Widget World ended up exposed to competition law risk due to the conduct of a rogue employee. One sales manager decided to reconnect with the instigators from Azure and Zenith to help boost his sales.
Unknown to management, he engaged in price-fixing and collusion with the other companies.
Negative approach to compliance
The drive for profits led to a conspiracy
Widget World’s team agreed to the plan to try to keep pace with the other two companies because of its disregard for competition law. Above all else, the business’s drive for profitability pushed the team in this direction.
For two years, the three companies took part in price-fixing, driving up costs for customers purchasing widgets and reducing competition in the industry. Sales margins were higher than in markets not affected by the scheme.
Management was fully aware of the unusual results and patterns but failed to look into them further. The sales team won large bonuses for the results.
Investigation
Three months ago, the Bureau received multiple complaints about pricing issues in the widget industry.
Positive approach to compliance
Outcomes
Due to the effective monitoring and auditing mechanisms in its compliance program, Widget World’s leadership was alerted to the rogue employee’s actions. News of the illegal activity came as a shock to the company’s leaders.
Widget World quickly contacted the Bureau and fully cooperated with its investigators. The company asked for and obtained a “first-in” marker for immunity under the Bureau’s program. By taking these steps, Widget World could avoid prosecution.
Widget World also took immediate action against the rogue employee. The company repaid the amount that customers overpaid as soon as the violations were uncovered.
Negative approach to compliance
Outcomes
During the investigation, Azure’s lawyers gave information to the Bureau about the price-fixing agreement among the three companies. As a result, Azure received a “first-in” marker for immunity under the Bureau’s program.
Given that Widget World and Zenith did not have effective compliance programs, the companies were not able to detect the conduct. Also, they did not cooperate with the Bureau’s investigation.
Eventually, the Bureau recommended that criminal charges be laid against Widget World and Zenith.
They now face harsh penalties, which includes jail time for certain employees, fines and financial damages from class-action lawsuits.
Additionally, the management was distracted from the core business operations by long meetings with lawyers and time in court. The companies faced high legal fees. They had to make significant changes to their operations to prevent future violations.
Case Study 2 – Other agreements that may harm competition
Let’s look at two hypothetical scenarios that compare a positive and a negative approach to compliance for other types of agreements that may harm competition.
Background
Alpha Inc and Beta Corp are promising, fast-growing start-ups with innovative cellphone chipset technology. These two competitors realize that they could benefit from working together. They start discussing a possible research and development (R&D) joint venture agreement to develop a commercially viable new chipset. They are considering the following terms:
- the objective would be to develop a chipset for cellphones with new and additional features to support future innovations
- the agreement would last for eight years
- both companies would provide funding to the joint venture
- neither company will conduct R&D in respect of new chipsets outside of the joint venture
- once the chipset is developed, both parties can produce and sell the product independently from one another.
Positive approach to compliance
Employee training helped identify risks early
Both companies had a comprehensive compliance program. They especially identified and mandated training for all employees in at-risk roles. Both companies conducted training through different methods with special emphasis on games and dos and don’ts checklists.
The commercial terms of the joint venture were discussed at a high level by the senior business development managers of both companies.
When the junior members of the business development teams received a high-level indication of the terms that their respective management teams wanted to pursue, they suspected that some of the provisions might raise concerns under the Competition Act.
They were concerned about the restriction on both the companies from conducting R&D outside of the joint venture for a period of eight years in a fast-growing industry such as cellphone chipsets.
They highlighted the issue with the legal team, who confirmed that these provisions could be viewed as lessening or preventing competition in the market.
Alpha and Beta immediately hired competition lawyers to advise them in the negotiations. The companies worked with their in-house lawyers and the outside competition lawyers to draft revised joint venture terms, which complied with competition law.
Outcomes
Since they took these measures, both companies updated the provisions of their joint venture agreement. They proceeded with their joint venture without intervention from the Bureau.
The founders of the companies recognized the gap in the training of senior managers. As a result, they strengthened compliance training for senior management.
Negative approach to compliance
Lack of compliance measures exposed companies to risk
Both companies had no compliance program for competition law. Some members of senior management were aware that competition law has some conditions for interaction with competitors. However, to save costs, they did not engage a competition lawyer and their in-house lawyers did not have competition law expertise.
The commercial terms of the joint venture agreement were reviewed and negotiated by the business development teams of both companies. They did not actively involve the legal and compliance team in the negotiations.
The two companies signed the agreement with certain restrictive clauses.
The Bureau learned of the joint venture and investigated
The Bureau’s intelligence gathering team saw discussions about the joint venture in online forums used by industry insiders and the Bureau started an investigation.
Outcomes
The Bureau pursued civil action against Alpha and Beta. It obtained a court order that meant the joint venture never went into effect.
Management for both companies spent long hours meeting with lawyers and sitting in court. They had to pay high legal fees.
Bid-rigging
Video length: 7 minutes, 25 seconds
In this section
The basics
Bid-rigging occurs when bidding companies agree that a specific supplier will win a contract and the person who has issued the call for bids is not informed of the proposed agreement. Bid-rigging is a criminal offence.
At the Bureau, we investigate such agreements or arrangements to determine if any competition laws were broken.
For more information, see our overview on bid-rigging.
Penalties
If a business or an individual breaks the law, they could face any of the following penalties or a combination of them:
- fines
- criminal record
- jail time for individuals.
In addition, a business could be disqualified from federal procurement processes. You may also want to check provincial and municipal procurement agencies’ rules that apply to businesses with criminal records.
If you’re a small business . . .
Competition law and compliance are important for all businesses, no matter their size, risk profile, industry or location of operation. They’re not only for large organizations. Indeed, many Bureau investigations related to bid-rigging involve small businesses and their people.
Credible and effective compliance programs do not have to be costly or complicated. Even simple steps can ensure that your compliance program runs effectively. You need to make sure that your organization is committed to doing the right thing.
Also, having a compliance program can help you to be a subcontractor for a bid. Larger companies generally have compliance programs in place. They’ll probably be more comfortable if their suppliers or subcontractors have one too. Some might even require you to implement one in order to do business with them.
See our resource(s) specifically made for you:
Bureau’s consideration of a compliance program
Determining how we resolve a criminal matter
When determining how to address criminal conduct, we will consider the strength of the evidence and determine whether we should recommend prosecution or pursue other forms of resolution like voluntary compliance. In this context, we will take into account the party’s conduct, including whether the business had a pre-existing credible and effective compliance program.
If we find evidence of an offence, we may make a recommendation to the Public Prosecution Service of Canada (PPSC). The PPSC is independent of the Bureau and has discretion over whether or not to prosecute the case.
Criminal matters: compliance programs and immunity or leniency applications
A credible and effective compliance program could help you uncover a possible crime at an early stage and facilitate an application under our Immunity and Leniency Programs. Most consensual resolutions in criminal matters happen as part of the Bureau’s Immunity and Leniency programs.
The treatment of all applications depends on the relevant facts of the case.
Immunity applications
- Only the first individual or business to report misconduct can be eligible for immunity under our Immunity Program.
- A compliance program might help you uncover misconduct sooner and put you in a better position to qualify for immunity from prosecution.
Leniency applications: Mitigating factors
- Even if immunity is not available, having a compliance program may help you when it comes to sentencing.
- If you are a leniency applicant and we are satisfied that you had a credible and effective compliance program in place when the misconduct occurred, we will include it in our recommendation to the PPSC as a mitigating factor.
Leniency applications: Aggravating circumstances
- If during our investigation, we see signs that your program is not credible or effective, we will be skeptical about your commitment to compliance.
- Using a compliance program to cover up or promote misconduct will weaken your application for leniency. So will lying about your program.
- Here are some examples of aggravating circumstances:
- Senior management cover-up. If senior management attempts to implement a compliance program while they also intend to break the law, we will not consider the program to be either credible or effective and we might consider this as an aggravating factor in our recommendation to the PPSC.
- Rogue employee. If an individual intentionally broke the law despite the existence of a compliance program, we might consider this as an aggravating factor in our recommendation to the PPSC in relation to that individual.
- Exception: Despite an individual’s involvement in a violation, we might still give consideration to your business’s compliance program if it shows all of the following:
- the business applied the principles in the Bureau’s guidance to prevent misconduct,
- the individual(s) in question acted alone, and
- the perpetrator(s) hid the conduct from others in the business.
Criminal matters: compliance program review process for leniency applicants
Criminal matters: compliance program review process for leniency applicants
-
Description of image – Criminal matters: compliance program review process for leniency applicants
The image explains the process of review of compliance programs for leniency applicants.
First, the Compliance Unit of the Bureau reviews the compliance program to determine if the program is credible and effective. After reviewing the compliance program, the Compliance Unit will make a recommendation to the Deputy Commissioner of Competition (Cartels Directorate).
The Deputy Commissioner of Competition (Cartels Directorate) of the Bureau, will review the recommendation of the Compliance Unit and further make leniency recommendations to PPSC.
The PPSC has the discretion to accept or reject the Bureau’s recommendation.
When a leniency applicant asks us to consider its compliance program, our Compliance Unit reviews it to determine if the program applies the principles covered in Core principles of a credible and effective compliance program.
The burden is on the applicant to prove that its program effectively applies these principles.
What information do we look at?
The Compliance Unit may consider a range of relevant information, including
- information and evidence gathered by the enforcement team throughout their investigation;
- all relevant information that speaks to the credibility and effectiveness of the applicant’s compliance measures;
- business records and information from the business’ staff.
Access to this information is voluntary and the leniency applicant may decide whether or not to provide it. If the Compliance Unit lacks information, it might not be able to make a positive recommendation.
When do we need it?
The Bureau needs this information before we make our recommendation on leniency to the PPSC. In particular, the Compliance Unit will need timely access to information before making its recommendation to the Deputy Commissioner.
Compliance programs and voluntary or negotiated resolutions
Generally, we encourage voluntary compliance. We often try to reach a negotiated settlement. We will consider information and evidence that we see throughout our investigation that speaks to the credibility and effectiveness of your compliance measures.
You do not need to have a compliance program in place to be able to settle a matter with us or the PPSC. However, as part of a settlement negotiation:
- if you have one, we (i.e., the Bureau or the PPSC) may need you to review and improve it;
- if you do not have one, we may need you to build a credible and effective compliance program based on the Bureau’s guidance on Core principles of a credible and effective compliance program.
Key takeaways
Be aware of the risks
- Are you planning on submitting a joint bid with a competitor?
- Have you discussed competitively sensitive information regarding your bid with a competitor?
- Have you shared with a competitor your intention or not to submit a bid to a particular tendering process?
- Is the pool of competing bidders for a particular contract typically small?
- Is the product being purchased through a tendering process standardized or commoditized?
- Have you agreed with another bidder to do any of the following:
- submit prearranged bids
- not submit a bid
- withdraw a bid?
- Have you done any of the above without prior notice to the tendering authority?
- Have you been approached by another bidder to do any of the above mentioned activities?
If in doubt of any of these situations, review our detailed guidance on common types of illegal agreements that hinder competition or talk to your lawyer or compliance officer.
Use these strategies to mitigate your risks
Interactions with third parties
- Encourage or require smaller companies that want to act as your subcontractor/consortium partners to implement a compliance program.
- Seek legal advice before contacting or entering into agreements or joint bids with competitors, or communicating anything that could look like signals to competitors about pricing, trade terms or any other element of competition.
- Consider including a lawyer in meetings with competitors to provide guidance.
- If any improper discussions arise, your representatives should leave the meeting and have their departure recorded. Such incidents should be reported immediately to your compliance officer or lawyer.
Trade associations activities
- Participate in trade association activities only if the association implements a credible and effective compliance program.
- Document all contact with competitors and keep proper records. If your external or trade association activities could create an appearance of collusion, make the necessary changes to avoid that.
- Create a clear written agenda when meeting with competitors — do not stray from the agenda.
- Check out our Tips for members of a trade association.
Internal activities
- Make all decisions regarding your bid internally at your company without discussing them with your competitors.
- Check out our Tips for bidders.
- Contact the Bureau if you encounter or suspect bid-rigging practices.
Case study
Let’s look at two hypothetical scenarios that compare a positive and a negative approach to compliance in bid-rigging.
Bid rotation
Background
Canada 123 Landscaping and Acme Maintenance are two small businesses that offer grounds maintenance services for parks and public buildings in a small Canadian city.
Recently, the Bureau received a complaint from the city’s purchasing department. The city believed Canada 123 and Acme were partners in a bid-rigging scheme.
Two recent contracts seemed to be subject to a rotation. Each contract received only one bid from one of the companies, and the other company did not bid. These bids were at unusually high prices.
Prior to this, both companies had positive reputations with no complaints on file.
Positive approach to compliance
Canada 123’s strong culture of compliance
Canada 123’s compliance program was led by its business manager. The company used resources from the Bureau to create a list of dos and don’ts that was posted inside the company’s offices and on its intranet and handed out to employees on wallet-sized cards.
Management often spoke about the importance of compliance and about the company having zero tolerance for violations.
The code of conduct was also updated to tell employees where to go to ask questions and report possible illegal behaviour safely.
Reporting mechanism led to early detection
Canada 123’s owner read in the news that government agencies were getting tougher on companies that were convicted of bid-rigging. Since most of Canada 123’s business came from bidding processes, she wanted her company to be as protected and prepared as possible. She instructed her business manager to ensure their program addressed competition law issues.
Management informed employees in informal meetings about the importance of competition law compliance and reminded them that they could use the company’s reporting mechanism without fear of retaliation.
This reminder prompted a junior-level employee to report to the company’s external auditor that his manager, a newer Canada 123 employee, who previously worked at Acme, had met with his counterpart outside of work to discuss pricing and bidding intentions.
Negative approach to compliance
Acme’s weak culture of compliance
Acme had no compliance program.
Management and staff were unaware of compliance with competition law and had no training, monitoring or enforcement measures in place.
Senior leaders often spoke of maximizing profits above all else and rewarded the most cutthroat salespeople.
Management involved in misconduct
Several months before the city’s purchasing department complained to the Bureau, a senior sales rep met with Acme’s president and proposed the bid rotation agreement with Canada 123. Acme’s president immediately saw the potential to boost profits and encouraged the rep to pursue the agreement.
The sales rep met with his counterpart at Canada 123 to discuss the arrangement. When the agreement was finalized, the sales rep emailed the president to let him know. The president replied: “Well done! This agreement was a great idea. Now, we can all win without butting heads with Canada 123 anymore.”
When Acme won its first contract after setting up the bid rotation agreement, the president gave the sales rep a large bonus.
What the investigation found
The Bureau independently uncovered the scheme and gathered sufficient evidence to make out a case of bid-rigging.
Positive approach to compliance
Outcome for Canada 123 Landscaping
In its investigation, the Bureau found that Canada 123 had an effective compliance program, even though a violation occurred.
Its owner’s actions strengthened Canada 123’s position. She was not involved in the scheme, yet she quickly contacted the Bureau to offer cooperation when she found out. She took steps to protect the whistleblower as well.
The Bureau recommended to the PPSC that charges be laid against Canada 123, but suggested lenient treatment for the business and no consequences for the owner.
Negative approach to compliance
Outcome for Acme Maintenance
The Bureau considered that management’s involvement in the bid rotation agreement was an aggravating factor. It showed their lack of commitment to compliance with the law.
The Bureau recommended to the PPSC that charges be laid against the owner of the business, the senior sales rep as well as the business. It recommended that the PPSC seek high fines and jail time for the owner and senior sales rep.
Wage-fixing and no-poaching agreements
Video length: 4 minutes, 28 seconds
In this section
The basics
A wage-fixing agreement is an agreement between employers to fix, maintain, decrease or control wages or other terms of employment.
A no-poaching agreement is an agreement between employers to restrict job mobility by refraining from hiring or trying to hire each other’s employees.
These provisions apply to unaffiliated employers and will apply even if the employers are not competitors in terms of supplying products.
At the Competition Bureau, we can investigate such agreements or arrangements to see if any competition laws were broken.
Learn more about these kinds of agreements by reading our guidelines on wage-fixing and no-poaching agreements.
Penalties
Wage-fixing and no-poaching agreements are criminal offences. If a business or an individual breaks the law, they could face any of the following penalties or a combination of them:
- fines
- criminal record
- jail time for individuals
If you’re a small business . . .
Competition law and compliance is important for all businesses, no matter their size, risk profile, industry or location of operation. They’re not only for large organizations.
Credible and effective compliance programs do not have to be costly or complicated. Even simple steps can ensure that your compliance program runs effectively. You need to make sure that your organization is committed to doing the right thing.
See our resource(s) made specifically for you:
Bureau’s consideration of a compliance program
Determining how we resolve a criminal matter
When determining how to address criminal conduct, we will consider the strength of the evidence and determine whether we should recommend prosecution or pursue other forms of resolution like voluntary compliance. In this context, we will take into account the party’s conduct, including whether the business had a pre-existing credible and effective compliance program.
If we find evidence of an offence, we may make a recommendation to the Public Prosecution Service of Canada (PPSC). The PPSC is independent of the Bureau and has discretion over whether or not to prosecute the case.
Criminal matters: compliance programs and immunity or leniency applications
A credible and effective compliance program could help you uncover a possible crime at an early stage and facilitate an application under our Immunity and Leniency Programs. Most consensual resolutions in criminal matters happen as part of the Bureau’s Immunity and Leniency programs.
The treatment of all applications depends on the relevant facts of the case.
Immunity applications
- Only the first individual or business to report misconduct can be eligible for immunity under our Immunity Program.
- A compliance program might help you uncover misconduct sooner and put you in a better position to qualify for immunity from prosecution.
Leniency applications: Mitigating factors
- Even if immunity is not available, having a compliance program may help you when it comes to sentencing.
- If you are a leniency applicant and we are satisfied that you had a credible and effective compliance program in place when the misconduct occurred, we will include it in our recommendation to the PPSC as a mitigating factor.
Leniency applications: Aggravating circumstances
- If during our investigation, we see signs that your program is not credible or effective, we will be skeptical about your commitment to compliance.
- Using a compliance program to cover up or promote misconduct will weaken your application for leniency. So will lying about your program.
- Here are some examples of aggravating circumstances:
- Senior management cover-up. If senior management attempts to implement a compliance program while they also intend to break the law, we will not consider the program to be either credible or effective and we might consider this as an aggravating factor in our recommendation to the PPSC.
- Rogue employee. If an individual intentionally broke the law despite the existence of a compliance program, we might consider this as an aggravating factor in our recommendation to the PPSC in relation to that individual.
- Exception: Despite an individual’s involvement in a violation, we might still give consideration to your business’ compliance program if it shows all of the following:
- the business applied the principles in the Bureau’s guidance to prevent misconduct,
- the individual(s) in question acted alone, and
- the perpetrator(s) hid the conduct from others in the business.
Criminal matters: compliance program review process for leniency applicants
Criminal matters: compliance program review process for leniency applicants
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Description of image – Criminal matters: compliance program review process for leniency applicants
The image explains the process of review of compliance programs for leniency applicants.
First, the Compliance Unit of the Bureau reviews the compliance program to determine if the program is credible and effective. After reviewing the compliance program, the Compliance Unit will make a recommendation to the Deputy Commissioner of Competition (Cartels Directorate).
The Deputy Commissioner of Competition (Cartels Directorate) of the Bureau, will review the recommendation of the Compliance Unit and further make leniency recommendations to PPSC.
The PPSC has the discretion to accept or reject the Bureau’s recommendation.
When a leniency applicant asks us to consider its compliance program, our Compliance Unit reviews it to determine if the program applies the principles covered in Core principles of a credible and effective compliance program.
The burden is on the applicant to prove that its program effectively applies these principles.
What information do we look at?
The Compliance Unit may consider a range of relevant information, including
- information and evidence gathered by the enforcement team throughout their investigation;
- all relevant information that speaks to the credibility and effectiveness of the applicant’s compliance measures;
- business records and information from the business’ staff.
Access to this information is voluntary and the leniency applicant may decide whether or not to provide it. If the Compliance Unit lacks information, it might not be able to make a positive recommendation.
When do we need it?
The Bureau needs this information before we make our recommendation on leniency to the PPSC. In particular, the Compliance Unit will need timely access to information before making its recommendation to the Deputy Commissioner.
Compliance programs and voluntary or negotiated resolutions
Generally, we encourage voluntary compliance. We often try to reach a negotiated settlement. We will consider information and evidence that we see throughout our investigation that speaks to the credibility and effectiveness of your compliance measures.
You do not need to have a compliance program in place to be able to settle a matter with us or the PPSC. However, as part of a settlement negotiation:
- if you have one, we (i.e., the Bureau or the PPSC) may need you to review and improve it;
- if you do not have one, we may need you to build a credible and effective compliance program based on the Bureau’s guidance on Core principles of a credible and effective compliance program.
Key takeaways
Be aware of the risks
- Is it hard to find staff because there is a lot of employment demand for a limited supply of people?
- Has it been common practice in your industry to not seek to poach employees from other organizations?
- Have you agreed or arranged with another unaffiliated employer to do any of the following:
- to fix salaries, wages or terms and conditions of employment?
- to maintain salaries, wages or terms and conditions of employment?
- to decrease salaries, wages or terms and conditions of employment?
- to control salaries, wages or terms and conditions of employment?
- Have you agreed or arranged with another unaffiliated employer to not solicit or hire each other’s employees?
If in doubt in any of these situations, review our detailed guidelines on wage-fixing and no-poaching agreements, or talk to your lawyer or compliance officer.
Strategies to mitigate your risks
External activities
- Seek legal advice before:
- engaging in collaborative activities with other unaffiliated employers, including the sharing of employment terms
- contacting or communicating commercially sensitive information with other unaffiliated employers (e.g., employment terms)
Internal activities
- Make all employment decisions independently, without discussing them with other employers, whether they are competitors or not.
- Contact the Bureau if you encounter or suspect wage-fixing or no-poaching agreements.
Case study
Let’s look at two hypothetical scenarios that compare a positive and a negative approach to compliance for wage-fixing and no-poaching agreements.
Wage-fixing and no-poaching agreements
Background
Beaver Kitchen is a family-owned and operated mid-sized regional restaurant chain. Major decisions are made by family members who have run the business for decades. They typically do not consult any professionals.
Moose Cuisine is a mid-sized catering business with branches across the same region. While they do not compete for customers, the two firms are struggling to hire and retain employees due to a labour shortage in the industry. Turnover of cooks and other staff is high. Neither wants to increase prices, as that could drive away business, but they both worry about staying profitable if their labour costs rise too much.
A chef at Moose Cuisine recently quit. During her exit interview, she mentioned to her manager that she had taken a similar job at a neighbouring Beaver Kitchen location because she was offered an extra $1/hr of pay. The manager calls his counterpart at Beaver Kitchen, and they agree to meet for lunch. During their discussion, they both expressed frustration at “paying more for the same work,” and how uncertainty with their labour force makes their jobs more difficult. They realize they could both have an easier time if staff mobility was reduced. They each agree not to hire workers who are part of each other’s organization, or to pay more than the current rate for new employees. This way, they can avoid raising prices on their menus and driving away business.
Both managers report of the agreement at their respective company’s next internal management meeting. Other managers at each company decide to implement their own wage-fixing and no-poaching agreements.
A few months later, Beaver Kitchen’s operations are handed over to the new generation of the family.
Positive approach to compliance
Culture shift at Beaver Kitchen
Beaver Kitchen had a compliance program, but it was last amended over a decade ago. It never addressed competition law risks and there was no designated compliance officer.
The new generation of the family decided to change its approach to business. They appointed new directors to achieve gender parity on the board, and they also appointed some industry experts.
One of the new directors, who had compliance-related experience in the restaurant sector in another country, suggested a review of the outdated compliance program.
Compliance program review uncovered misconduct
Beaver Kitchen engaged a compliance specialist to update the compliance program to factor in competition law risks, including recent amendments to the law. The company appointed its CFO as the compliance officer to implement the revised program.
At the next quarterly review, data analysis showed a sudden lower-than-expected staff turnover and an unusually stable cost of labour.
To investigate the situation, the CFO met with some location managers and eventually learned of the no-poaching and wage-fixing agreements.
Outcomes
Realizing that this was criminal activity, the CFO immediately informed the board of directors. She also retained and instructed external counsel to apply to the Bureau’s Immunity Program. Senior management ordered that the conduct be stopped.
Beaver Kitchen’s evaluation and revision of its compliance program allowed it to detect the issue early. It was the first company to report the agreement to the Bureau and avoided criminal sanctions by obtaining immunity.
Negative approach to compliance
Moose Cuisine oblivious to misconduct
Moose Cuisine had no compliance program for competition law. Senior managers were aware and pleased that the company had managed to avoid the worst effects of the labour shortage in its industry but did not investigate why that would be.
Managers at Moose Cuisine were surprised that the mutually beneficial agreements were terminated. When senior management learnt of the change, it was suspicious and sought advice, which confirmed that the agreements were illegal.
Outcomes
Moose Cuisine then contacted the Bureau in an attempt to request immunity but was too late because Beaver Kitchen had already done so. The best it could do was cooperate with the investigation in exchange for lenient treatment.
Moose Cuisine had to plead guilty to an offence and pay a fine. If it had had a credible and effective compliance program in place when the misconduct happened, the Bureau would have treated this as a mitigating factor when making its recommendation to the PPSC.
Deceptive marketing practices
Video length: 9 minutes, 49 seconds
In this section
The basics
It is against the law for businesses and individuals to advertise or market goods and services in a way that is false or misleading. These practices could be considered deceptive marketing. This law applies to all businesses no matter their size.
The Competition Act covers various kinds of marketing practices. They include:
At the Competition Bureau, we can investigate marketing practices to see if they amount to deceptive marketing. For more information, see our overview of deceptive marketing practices.
Penalties
Some deceptive marketing practices fall under the civil provisions of the Act, while others are under the criminal provisions. The consequences for deceptive marketing will depend on the part of the law that has been broken.
Possible consequences of violating the civil provisions
- Financial penalties for your business and for individuals
- Restitution (for example, repaying the money gained through the deceptive practice)
- Changes to your marketing practices
- Having to publish a notice describing the deceptive practice
Possible consequences of violating the criminal provisions
- Fines for your business and for individuals
- Prohibition orders (for example, an order to stop certain types of marketing practices)
- Having to publish a notice describing the deceptive practice
- Criminal records
- Jail time for individuals
- Restitution
For more information, see the penalties for non-compliance for deceptive marketing practices.
If you’re a small business . . .
Competition law and compliance are important for all businesses, no matter their size, risk profile, industry or location of operation. They’re not only for large organizations.
Indeed, a lot of the Bureau investigations related to deceptive marketing involve small businesses and their people.
Marketing practices are constantly evolving. Businesses no longer restrict themselves to traditional methods of promotion. Many small businesses use digital marketing strategies such as promotional emails and influencer marketing. Knowing the law can help you market your product safely.
Also, as a small business owner, you may be the target of B2B deceptive practices. Being aware of scams can help you avoid becoming a victim. Understanding the law will help you know your rights if you are targeted by deceptive practices.
Having a credible and effective compliance program can help you be ahead of the game. It does not have to be costly or complicated. Even simple steps can ensure that your compliance program runs effectively. You need to make sure that your organization is committed to doing the right thing.
See our resources made specifically for you:
Bureau’s consideration of a compliance program
Choice to pursue either a civil or criminal enforcement track
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Description of image – Bureau’s consideration of a compliance program while handling a deceptive marketing practice case
The image is a diagram that represents how the Bureau will consider a compliance program during the life cycle of a typical deceptive marketing practice case.
At the beginning of a matter, in some cases, we have the option to pursue either civil or criminal action. When determining which track to pursue, having a pre-existing credible and effective compliance program is a factor that we will consider.
Then, the case may proceed to the investigation stage.
In case of settlement negotiations, regardless of whether the matter is criminal or civil, we may consider a compliance program as part of the negotiation. In case of litigation/prosecution, having a compliance program could help your business in mounting a due diligence defence.
Choice to pursue either a civil or criminal enforcement track
In some cases, we have the option to pursue either civil or criminal action. When determining which track to pursue, we consider – among other factors – whether criminal prosecution is in public interest. While doing this assessment, we will evaluate whether the business had a pre-existing credible and effective compliance program.
Learn more about the choice of track.
In criminal matters, if we find evidence of an offence, we may make a recommendation to the federal or provincial Crown counsel. Crown counsel are independent of the Bureau and have discretion over whether or not to prosecute the case.
Compliance programs and voluntary or negotiated resolutions
Generally, we encourage voluntary compliance and often we try to reach a negotiated settlement.
Regardless of whether the matter is criminal or civil, you do not need to have a compliance program in place to be able to settle a matter with us or Crown counsel. However, as part of a settlement negotiation:
- if you have one, we (i.e., the Bureau or Crown counsel) may need you to review and improve it;
- if you do not have one, we may need you to build a credible and effective compliance program based on the Bureau’s guidance on Core principles of a credible and effective compliance program.
We will consider information and evidence that we see throughout our investigation that speaks to the credibility and effectiveness of your compliance measures.
Criminal deceptive marketing: immunity applications
A credible and effective compliance program could help you uncover a possible crime at an early stage and facilitate an early application under our Immunity Program.
Immunity is relevant for businesses and individuals:
- Businesses: If only one business is involved in the misconduct, it will not be eligible for immunity.
- Individuals: Individuals employed by the business may be separately eligible under our Immunity Program. The treatment of all immunity applications under these programs depends on the relevant facts of the case.
Defence of due diligence
“Due diligence” is a legal term to describe when a business’s leadership takes all the steps that are reasonable in the circumstances to prevent the company from breaking the law.
Under the Competition Act, a business can argue that it exercised due diligence to prevent the following types of criminal conduct:
A business can also argue that it exercised due diligence to prevent civil deceptive marketing.
Having a compliance program is not, in itself, a defence to an allegation of deceptive marketing. However, it could help your business to show that you took all the steps that were reasonable in the circumstances to prevent someone in your company from breaking the law. Evidence of a credible and effective compliance program can help you advance a defence of due diligence.
Key takeaways
Be aware of the risks
If you market a product or service, you could be at risk of engaging in deceptive marketing.
Make sure you understand the law:
- check out our bootcamp
- review the resources on the Competition Bureau website
- get legal advice on issues specific to your business
- make sure that your compliance measures cover your marketing practices
Check out our dos and don’ts for certain marketing practices
- Advertising dos and don’ts
- Influencer marketing
- Marketing “free” digital products or services
- Drip pricing
- Greenwashing
- Made in Canada claims
If you feel you are the victim of these types of practices, notify us. You should also consider consulting a lawyer to evaluate your legal options.
Case study
Drip pricing
Let’s look at two hypothetical scenarios that compare a positive and a negative approach to compliance for drip pricing.
Background
ABC Inc. is a regional hospitality business that operates hotels and restaurants. It recently opened a day spa and wellness centre called the Caliceo Spa. The company recruited a marketing director for the new operation.
To boost margins, the recently-hired spa marketing director suggested a strategy to senior management:
- make the following prominent statement on the home page of the company website: “Special Online Offer -The Caliceo Experience - a relaxing day for just $250 – enjoy a relaxing massage or bespoke wellness treatment along with access to our indoor pool, fitness centre and recreational facilities. Book now!”
- once a customer selects the massage or treatment that they wish to buy, push them to another step in the online sales process
- at this stage, add a mandatory fee of $50 for towels, access to change rooms and lockers, and a mandatory $10 “online convenience fee”
ABC Inc. has a basic compliance program in place to address health and safety regulations that generally apply to hospitality businesses. The program does not cover marketing and sales practices.
Positive approach to compliance
Management’s continuous learning
ABC Inc.’s senior management wanted to stay on top of the rules that apply to their business to head off avoidable risks. To do so, they regularly attended events organized by their local chamber of commerce.
One such event was a session on the 2022 amendments to the Competition Act, which the new marketing director of Caliceo Spa attended. During the session, they learned about the deceptive practice of drip pricing for the first time. They shared this information with the other members of senior management.
Drip pricing strategy rejected
Senior management decided to reject the proposed strategy because it would create significant risk for the business.
Program evaluation strengthened compliance measures
ABC’s management team took steps to update the company’s compliance policy and extend it to cover competition and marketing laws.
The company arranged for staff to attend free sessions on marketing practices hosted by the trade association. It also communicated marketing dos and don’ts to employees through email alerts and small checklists posted in the office. During informal team meetings, managers would regularly talk about marketing practices and the company’s compliance policy.
ABC Inc. also created an internal review procedure for ensuring that all advertisements and promotional literature published by the company complied with the Act.
Outcomes
Due to the measures taken by ABC Inc., it was able to stay on the right side of the law.
Negative approach to compliance
Lack of awareness of the law led to risks
ABC Inc.’s senior management did not practice continuous learning and was of the view that compliance is expensive. It thought that building a comprehensive compliance program was not worth the investment. Management did not take advantage of the free resources available on the Bureau’s website or those provided by trade associations and local chambers of commerce.
The management team approved the marketing strategy without realizing that it amounted to drip pricing.
The Bureau investigated
A couple of months later, ABC Inc. received a notice from the Bureau advising that it is under investigation for possible drip pricing. For the first time, ABC Inc. learned that its marketing strategy created risk for the company.
Outcomes
Eventually, the Bureau pursued civil action against ABC Inc. The management team logged many hours meeting with lawyers and sitting in court, and paid extensive legal fees.
The company ultimately had to pay a penalty and change its marketing practices. It also had to update its compliance program to cover competition and marketing laws.
Abuse of dominance and restrictive trade practices
Video length: 4 minutes, 46 seconds
In this section
The basics
Abuse of dominance
The Competition Act has specific rules for dominant entities. An organization is a dominant entity when it has a substantial degree of market power. In other words, the organization’s position means that it has the ability to set prices above competitive levels or to reduce other factors, such as product quality, below competitive levels.
The Act says that a dominant entity cannot abuse its dominance by using its market power in a way that hurts competition.
At the Competition Bureau, we can investigate the conduct of a dominant entity to see if it abused its dominance. For more information, please see our overview on Abuse of dominance.
Other restrictive trade practices
The Act has provisions that cover other restrictive trade practices that could harm competition. These provisions do not always require the organization engaging in the practices to be dominant. However, they do generally require that the organization has enough market power, or that the practices are widespread enough, to affect competition.
- Refusal to deal
- Refusing to sell to a willing customer, which prevents the customer from being able to obtain adequate supplies of a product, significantly harming that customer’s ability to do business.
For more information, see our guidance on refusal to deal. - Price maintenance
- Supplier trying to control the retail price of a product through different methods, including increasing prices, discouraging reduction in price and refusal to supply.
For more information, see our guidance on price maintenance. - Exclusive dealing
- Supplier requiring or inducing a customer to deal mainly or only with them, or with someone they choose.
For more information, see our guidance on exclusive dealing. - Tied selling
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- Supplier requiring or inducing a customer to buy a second product.
- Tied selling may also prevent a customer from using or distributing another product with a product supplied by a vendor.
- Market restriction
- Supplier requiring the customer to sell certain products in a defined market or penalizing the customer for selling outside a specific market.
For more information, see our guidance on market restrictions.
Consequences
Possible consequences for an organization violating the law:
- Financial penalties
- Prohibition orders: stopping the business from engaging in the anti-competitive practice (e.g., order to stop requiring customers buy from you exclusively)
- Prescriptive orders: directing the business to take action to overcome the effects on the anti-competitive practice (e.g., divestiture of assets or shares)
If you’re a small business…
Although it might look like these provisions are relevant only to big businesses, it’s important for businesses of all sizes to be aware of the law. Sometimes, startups and small businesses are impacted by abusive tactics. If you take the time to understand these provisions, it’ll help you identify potentially abusive tactics and notify us.
The Act also enables private parties to apply directly to the Competition Tribunal if they are directly and substantially affected by some kinds of abusive or restrictive conduct. For more information, please see our page on private access to Competition Tribunal.
A credible and effective compliance program can help you spot potentially anti-competitive practices. It does not have to be costly or complicated. Even simple steps can ensure that your compliance program runs effectively.
Bureau’s consideration of a compliance program
Generally, we encourage voluntary compliance and often we try to reach a negotiated settlement to resolve a matter.
You do not need to have a compliance program in place to be able to settle a matter with us. However, as part of a settlement negotiation:
- if you have one, we may need you to review and improve it;
- if you do not have one, we may need you to build a credible and effective compliance program based on the Bureau’s guidance on Core principles of a credible and effective compliance program.
Key takeaways
Are you a market leader? Do you have a high market share (e.g., over 50%)?
- You should pay special attention to your business practices if you could be considered a leader in a market, or if you have some degree of market power.
- Talk to your compliance officer or legal counsel about how to address these competition law risks in your compliance program.
Are you affected by anti-competitive practices?
Is a major player, or group of players, in the market acting in a way that is:
- preventing you from entering the market?
- preventing you from expanding in the market?
- pushing you out of the market?
- penalizing you for any of your commercial activity?
- making you less competitive (for example, by preventing you from lowering your costs or offering better products, services or technology)?
- making it difficult for you to attract new customers (for example, because they are locked up in long-term contracts or face high costs to switch service providers)?
- harming competition through their power as major buyers of products or services?
This is a list of some behaviours that could fall into the category of abuse of dominance or other restrictive trade practices. Other types of conduct could also be considered an abusive or a restrictive practice that is covered by the law.
If you feel you are impacted by these types of practices, notify us. You should also consider consulting a lawyer to evaluate your legal options.
Case study
Let’s look at two hypothetical scenarios that compare a positive and a negative approach to compliance for abuse of dominance.
Exclusivity provisions in contracts
Background
Homes-on-Rent started the business of an online marketplace for homestays and vacation rentals of homes in Canada in 2017. The platform enables homeowners (known as hosts) to rent their houses to users who wish to book a house (known as guests). Hosts are paid a percentage of the price at which they have chosen to rent the house.
It was the first company to offer such a service in the Canadian market. By 2020, the number of hosts and guests on the platform increased. Around this time, there were rumours that some American companies were looking to enter the Canadian market with their own home rental platforms.
To solidify its market position, Homes-on-Rent considered introducing an exclusivity policy that said hosts could not list the same homes on any competing platforms at the same time that they were listed on the Homes-on-Rent platform. The company would then monitor any violation of the exclusivity policy and take strict action against any misconduct by a host.
When Homes-on-Rent started operations, it had only a basic compliance program that did not address competition law risks.
Positive approach to compliance
Compliance program review
As its business grew, Homes-on-Rent started thinking seriously about competition law issues. It decided to adopt a comprehensive compliance policy in early 2020. It engaged an external compliance consultant on contract.
The consultant created a compliance program and regularly trained employees on acceptable business practices, especially by leading market players. She evaluated the compliance program annually and updated the board of directors on the effectiveness of the program.
Exclusivity policy is rejected
As Homes-on-Rent understood that it was a market leader, it decided not to adopt the exclusivity policy.
Outcome
Due to the compliance measures taken by Homes-on-Rent, the company stayed on the right side of the law.
Negative approach to compliance
No compliance program review
Even as the business grew, Homes-on-Rent did not create a culture of compliance or a comprehensive compliance policy.
Exclusivity policy roll-out
The company adopted the exclusivity policy and aggressively enforced its application.
Market entry and expansion are stifled
By 2021, Homes-on-Rent became Canada’s largest online marketplace for homestays and vacation rentals of homes, with more guests and hosts than any other such platforms.
Homes-on-Rent’s competitors struggled to build viable businesses in Canada since they could not attract enough hosts due to the Homes-on-Rent exclusivity policy.
A new competitor tries to enter the market
TravelEazy is a medium-sized online travel company which commenced operations in 2018. It offers a platform where users can easily book tickets (for travel by air, rail or road) and hotels in Canada. In 2021, a year after Homes-on-Rent had issued its exclusivity policy, TravelEazy started marketing homestays on its own platforms, exploring the option of connecting hosts and guests directly.
However, despite trying for a year, TravelEazy was unable to attract many hosts to its platform as most of the hosts are bound by the Homes-on-Rent exclusivity policy.
Positive approach to compliance
Credible and effective compliance program
TravelEazy had a credible and effective compliance policy in place. It had a chief operations manager who also looks after the compliance function.
The company regularly conducted townhalls where sector specialists were invited to talk to employees on various topics including compliance. The employees were given checklists to identify anti-competitive market practices.
TravelEazy shared information with the Bureau
The business development team realized that they were being blocked from doing business with the hosts due to Homes-on-Rent’s exclusionary business practices. TravelEazy approached the Competition Bureau.
The Bureau investigated Homes-on-Rent
Homes-on-Rent received notice from the Bureau that it had begun an investigation. For the first time, Homes-on-Rent realized that its conduct is illegal under the Act. It lacked a credible and effective compliance program, and management had made no effort to communicate the importance of compliance.
The Bureau concluded that Homes-on-Rent had abused its dominant position. In a negotiated settlement, in addition to paying a fine, Homes-on-Rent had to design and implement a credible and effective compliance program.
Homes-on-Rent also suffered reputational harm due to its conduct and paid significant legal expenses. It took a long time for the business to recover, and management had to devote more resources to create a viable compliance program and culture of compliance.
TravelEazy and other players encouraged increased competition in the market
The Bureau’s investigation into Homes-on-Rent’s conduct made guests and hosts aware of the exclusivity policy and that Homes-on-Rent had abused its dominant position.
TravelEazy and other players were able to reach out to many hosts. They quickly saw their platforms start to grow. Consumers had more choice in the market.
Negative approach to compliance
No comprehensive compliance program
TravelEazy chose to adopt a basic compliance program. It did not factor in competition law risks.
Its management and employees did not realize that Homes-on-Rent could be breaking the law by enforcing the exclusivity policy.
TravelEazy eventually chose to abandon its business plan of offering homestays on their platform.
TravelEazy exited the market
TravelEazy lost a potential business opportunity. Customers in the market lost the option of having a competitor to Homes-on-Rent in the market, which could have resulted in better services and lower prices.
The Bureau read news reports about TravelEazy abandoning its business plan. It also received complaints from some of the hosts. The Bureau decided to investigate Homes-on-Rent’s conduct.
Mergers
In this section
The basics
The Competition Act defines a merger as acquiring control over or significant interest in the business of a competitor, supplier, buyer or another person.
A merger could take place by way of acquiring shares or assets, an amalgamation, a combination or any other way of acquiring control over or significant interest in the business.
Most often, mergers that may cause competition concerns involve businesses that supply competing products or services, but the Act applies to all mergers.
How mergers are reviewed
Most mergers do not raise competition concerns. However, the Competition Bureau may take action if a merger could result in harm to competition. Harm to competition can occur in a number of ways, including
- higher prices
- reduced output
- reduced quality of goods or services
- less innovation.
We can review any merger for up to one year after closing.
For more information, see our overview of the merger review process.
Mergers
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Description of image – Mergers
The image is a flow chart that illustrates the difference between notifiable and non-notifiable transactions.
Notifiable transactions
In certain cases, the Competition Act requires the parties to a proposed merger to notify the Bureau prior to closing the transaction. This is known as a notifiable transaction.
- If the proposed transaction exceeds certain monetary thresholds, the parties must notify the Bureau.
- The Bureau must be notified of the transaction before the transaction is completed.
- The parties must provide certain specified information and wait for a specified period before completing the proposed transaction
- The Bureau can review any merger for up to one year after closing
Non-notifiable transactions
These are mergers that do not meet the thresholds for notification. In these cases:
- the parties can voluntarily contact the Bureau
- market participants may contact the Bureau with information
- the Bureau’s Intelligence unit may flag the merger
- the Bureau can review any merger for up to one year after closing
Major Risk Areas
Failure to notify
If you are required to notify us about a merger but fail to do so, you may have committed a criminal offence and may have to pay a fine.
Gun-jumping
If you are a party to a notifiable transaction, you cannot complete the merger:
- before the end of a specified period of time, or
- before we clear the transaction.
Merging parties that integrate their businesses or begin to close their transaction before these conditions are met may have engaged in what is called gun-jumping. They may be subject to civil or criminal penalties.
Transactions designed to avoid notification
The Act has a section related to mergers called anti-avoidance. If you structure your transaction to avoid the requirement to notify the Bureau, the transaction will still be treated as a notifiable transaction under the Act. If you complete such a transaction without notifying us, you may have committed a criminal offence and may have to pay a fine.
If you’re a small business…
Although it might look like these provisions are relevant only to transactions involving larger corporations, it’s important for businesses of all sizes to be aware of the law. There are many benefits to having a credible and effective compliance program. Here are just a few examples:
- If you want to sell your business, potential purchasers will want to know if you have a credible and effective compliance program to understand any associated risks related to your business. A compliance program demonstrates that you take compliance seriously, which could help you attract potential purchasers.
- The Bureau can review any merger, even small ones. If you are selling your startup or small business and you think your deal is too small to carry any competition law risk, that may not actually be true depending on the competition and innovation in your market. A robust compliance program can help ensure that you do not miss risk related to your exit strategy.
- Sometimes, businesses could face negative consequences from a merger. For example, a small business could be impacted if two of its biggest suppliers merge. A compliance program that covers all aspects of competition law could help you determine whether to contact the Bureau to share feedback with us about the effects and risks arising a potential merger in your market.
Credible and effective compliance programs don’t have to be costly or complicated. Even simple steps can ensure that your compliance program runs effectively.
Key takeaways
Determining risks in your proposed merger
- Have you conducted due diligence prior to the merger to understand if competition law issues could arise due to the proposed transaction?
- Could the structure of your transaction give the impression that it was designed to avoid notification?
- If your transaction is a non-notifiable merger, are there potential competition issues such that you should voluntarily contact the Bureau?
- Do you plan to share competitively sensitive information (such as pricing and sales strategies) with any other parties to the transaction before the merger closes?
- If your merger must be notified under the Act, do you plan to close the transaction before receiving approval from the Bureau or before the time specified under the Act has elapsed?
- Does the other party (or parties) to the proposed transaction have its own compliance program?
Strategies to mitigate your risks
- Review the publicly available materials and merger-specific guidance documents put out by the Bureau.
- Familiarize yourself with the notification requirements under the Act, including how to determine whether a proposed transaction is a notifiable transaction.
- Train your concerned employees adequately on the Act and provisions related to merger notification.
- Update your compliance programs and training after the merger or acquisition as your business and risks may have changed.
If you have any questions, ask your lawyer or compliance officer and/or contact the Merger Intelligence and Notification Unit before you complete any proposed merger transaction.
Case studies
Case Study 1 — Failure to notify a merger that must be notified under the Act
Let’s look at two hypothetical scenarios that compare a positive and a negative approach to compliance for a firm reacting to a failure to notify the Bureau about a notifiable merger.
Background
Nat Cole Cataman Finance Corp (NCC) and Bashir Hasmi Holdings (BSG) are Canadian publicly traded investment companies. Combined, they have assets of over $400 million.
NCC owns shares of BSG. Until recently, those shares never totalled more than 18% of BSG’s total shares.
Last month, the director of NCC’s trading department believed that BSG’s shares were undervalued and would be a good investment. NCC bought more shares in BSG, bringing its total voting interest in BSG up to 21%.
Last week, at an NCC board meeting, this transaction was listed as a recent activity for the board to review. NCC’s legal team raised a concern that it was not informed about this purchase.
The trading director said that he did not believe it was necessary to inform the legal team, because he chose to make the acquisition as an investment, not to obtain a controlling interest in BSG.
The legal team replied that even though a majority stake was not acquired, meeting certain financial and ownership thresholds required all companies involved to file a notification with the Bureau prior to making the acquisition.
Positive approach to compliance
NCC acts to fix weak compliance measures
Once the matter was brought to the attention of senior management and the legal team in the board meeting, it became clear that NCC was exposed to the possibility of litigation or of being subject to a Tribunal order.
NCC took the following actions:
- hired outside legal counsel to assess their risk for having failed to comply with the Competition Act;
- contacted BSG Holdings to inform the company of the acquisition;
- filed a notification with the Bureau, along with a letter explaining the circumstances around the initial failure to notify
- submitted the required filing fee
Outcomes
During the review, the Bureau found that NCC’s actions may have violated the Act because the company did not submit a pre-merger notification for a transaction that legally required one.
NCC cooperated to strengthen compliance program
The Bureau noted that NCC had a compliance program, but that it was out of date. Specifically, the program needed to cover pre-merger notification requirements and include additional training for managers and directors. NCC proactively worked to update its compliance program.
Negative approach to compliance
NCC’s management still does not support a culture of compliance
NCC only had a compliance program on paper. Its senior management did not work to create a culture of compliance.
Even though the legal team highlighted the need for notification in the board meeting, senior management ignored the advice.
Bureau pursues enforcement action
The Merger Intelligence and Notification Unit of the Bureau regularly gathers information about mergers and acquisitions. It learned about NCC’s acquisition of BSG’s shares. The Bureau contacted NCC and began a review.
During the course of its review, the Bureau discovered the failure to notify. This failure was not addressed due to NCC’s intentional notification avoidance even after the issue was flagged by the legal team.
The Bureau initiated an investigation for failing to notify a notifiable transaction. NCC was exposed to the possibility of litigation and being the subject of a Tribunal order.
Case Study 2 — Structuring a transaction to avoid having to notify the Bureau
Let’s look at two hypothetical scenarios that compare a positive and a negative approach to compliance in a merger that would fall under the Act’s anti-avoidance provisions.
Background
Gold Standard is an American publicly traded heavy machinery manufacturer and wholesaler, with a focus on the oil and gas and mining sectors. One product it manufactures is widgets used for oil and gas extraction.
Silver Spoon is a Canadian privately held corporation that manufactures and sells various types of oil and gas equipment. Its principal focus is on widgets used for oil and gas extraction.
Their products overlap in many but not all of the geographic markets they serve. The principal overlaps are in northern British Columbia, Ontario and Quebec.
Gold Standard and Silver Spoon are the only two entities that supply certain oil and gas companies with widgets. Widgets are essential for a specific type of extraction method.
Gold Standard and Silver Spoon first contemplated a merger through the implementation of an asset purchase agreement (Structure A).
However, after additional deliberation they considered the use of two separate agreements: an asset purchase agreement and a share purchase agreement (Structure B).
Structure A and Structure B both result in Gold Standard’s acquisition of all of Silver Spoon’s Canadian operating business segments. However, the two companies believed that only Structure A would be notifiable under the Act. Gold Standard and Silver Spoon prepared Structure B because they believed it permitted them to avoid notification.
The reason Gold Standard and Silver Spoon considered Structure B is because they feared that, after notifying the Bureau and providing it with the required information, the Bureau might conclude that the merger could harm competition and seek to block the merger or obtain alternative remedies, such as divestitures.
Positive approach to compliance
Risk assessment triggered by changes in the law
Gold Standard had a comprehensive compliance program that was regularly monitored and updated.
When the Act was amended in June 2022, the compliance officer initiated a review of the organization’s risk assessment and updated the program to require approval of a high-level working committee for any major decision in Gold Standard.
Governance and internal controls strengthened
As the acquisition was an important project for Gold Star’s business expansion plans, the compliance officer was made a member of the working committee whose approval was required to proceed with the transaction.
When presented for his approval, the compliance officer highlighted the Act’s provision relating to anti-avoidance.
Outcome
Based on the compliance officer’s advice, Gold Standard and Silver spoon decided instead to choose Structure A and notified the Bureau prior to completing the proposed transaction.
Negative approach to compliance
Weak compliance culture leads to risk
Gold Standard and Silver Spoon did not take compliance seriously, and they chose Structure B to avoid notification.
The companies completed the transaction, resulting in the new company Bronze Medal, and did so without notifying the Bureau.
Soon after the closing, the Bureau received multiple complaints from customers of Gold Standard and Silver Spoon.
Outcome
The Bureau contacted Bronze Medal and began a review. During the course of its review, it discovered the intentional notification avoidance and initiated an investigation for failing to notify a notifiable transaction. Bronze Medal was exposed to the possibility of litigation and being the subject of a Tribunal order.
Labelling and precious metals marking
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Video length: 6 minutes, 15 seconds
Video length: 3 minutes, 52 seconds
In addition to the Competition Act, we enforce the Consumer Packaging and Labelling Act (except as it relates to food), the Textile Labelling Act and the Precious Metals Marking Act.
Under these laws, consumers must be given certain information so that they can make informed buying decisions.
Under the Consumer Packaging and Labelling Act:
- the packaging, labelling, sale, importation and advertising of prepackaged non-food consumer products must meet specific requirements
- products must have three mandatory statements on the label
- product identity
- product net quantity
- dealer’s name and principal place of business
- all information on a package and in advertising should not be false or misleading to the consumer
- the Consumer Packaging and Labelling Regulations specify how and where the mandatory statements have to appear
Under the Textile Labelling Act:
- the labelling, sale, importation and advertising of consumer textile articles must meet specific requirements of the Act and the Textile Labelling and Advertising Regulations
- textile labels must include the generic fibre name, content and the dealer’s full name and postal address, or for a dealer in Canada, a CA identification number
- textile labels and advertising cannot make any false or misleading representations relating to textile fibre products
Under the Precious Metals Marking Act:
- articles containing precious metals, meaning gold, silver, platinum or palladium, on their own or combined with other metals, must be marked as designated in the Precious Metals Marking Regulations
- articles made with precious metals must use uniform description and quality markings
- it is not mandatory to mark or advertise a precious metal article for quality (e.g., sterling silver), however any mark or advertisement which refers to the quality of a precious metal article must be factual and meet specific requirements in the law and regulations
Our page on labelling laws gives you more information on how to comply with these rules. You can also try our compliance bootcamp series on labelling laws.
How to contact us
For general inquiries: contact the Bureau
Important notice: Because every situation presents unique facts, the information set out below is provided for general information only. This content is not a substitute for legal advice, nor is it a binding statement of the Commissioner of Competition’s position on the requirements or efficacy of any particular compliance program. Indeed, there is no one-size-fits-all approach when it comes to achieving credible and effective compliance.