Deceptive marketing practices

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Table of Contents

 

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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 your business no matter how big or small it is.

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 corrective notices

Possible consequences of violating the criminal provisions

  • Fines for your business and for individuals
  • Changes to your marketing practices
  • Having to publish corrective notices
  • Criminal records for individuals
  • Jail time for individuals
  • Restitution

For more information, see the penalties for non-compliance for deceptive marketing practices.

Reasons why compliance is good for your business

Most businesses in Canada want to do the right thing and operate within the law. Companies with strong compliance programs are in the best position to do so.

A credible and effective compliance program minimizes the chances of risky behaviour or potentially illegal activity and its consequences.

It can help your organization:

  • operate within the law
  • keep marketing activities compliant
  • understand the risks from industry events and interactions with third parties, such as partners, competitors, or trade associations
  • reduce the risk of costly investigations and lawsuits that interfere with your operations
  • avoid penalties for your business and jail time for your people
  • avoid the consequences of being associated with criminal conduct and protect your reputation
  • minimize your business’ exposure to class action lawsuits
  • remain eligible to participate in federal public procurement
A credible and effective compliance program strengthens your business and your reputation.

It might help:

  • your organization recruit and retain good talent
  • your business compete fairly and with confidence
  • your people spot when others in the market are not playing by the rules
  • your organization meet its environmental, social and governance goals

A small reminder on what makes a compliance program credible and effective

Your compliance program needs to be credible and effective to truly help you.

To be credible, your program must at a minimum show your business’ genuine commitment to obeying the law and competing fairly.

To be effective, your program must inform all your people, and those acting for your organization, that compliance is important. It must inform them of their legal duties and your internal compliance measures. It should also give you the tools to prevent and detect misconduct.

Your program should be reasonably designed, implemented and enforced in the circumstances. This means that it addresses your organization’s risks within your resources and in light of your business activities.

If you’re a small business . . .

Compliance is important for all businesses, no matter their size, risk profile, industry or location of operation.

Credible and effective compliance programs don’t have to be costly or complicated. They’re not only for large organizations. If your business is small or medium-sized, you need to make sure that management is committed to doing the right thing. Even simple steps can ensure that your compliance program runs effectively.

There are many benefits to having a credible and effective compliance program. Here are just a few examples:

  • You stand a better chance of doing business with larger companies. They generally have compliance programs in place. They’ll probably be more comfortable working with you if you do too. Some might even require their suppliers or partners to have a compliance program.
  • If you want to sell your business, you’ll find it easier to attract potential buyers. Acquirers will look into your organization’s compliance history. A compliance program demonstrates that you take compliance seriously.

Consideration that the Bureau gives to a compliance program

Generally, we encourage voluntary compliance. We often try to reach a negotiated settlement. However, we will not hesitate to vigorously pursue enforcement action when necessary.

Learn more about how we ensure compliance with the law.

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 the public interest. In this context, we will evaluate whether the business had a pre-existing credible and effective compliance program.

Non-criminal deceptive marketing: Compliance programs and voluntary or negotiated resolutions

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. However, if you have one, we may need you to review and improve it as part of a settlement. If you do not have one, we may need you to build a credible and effective compliance programbased on the Bureau’s guidance to resolve our concerns.

Criminal deceptive marketing: immunity applications

In criminal matters, we can investigate whether an offence was committed. If we find evidence of an offence, we may make a recommendation to the Public Prosecution Service of Canada (PPSC). The PPSC has discretion over whether or not to prosecute the case.

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. If only one business is involved in the misconduct, it will not be eligible for immunity. However, 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.

Determining how we will try to 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.

Defence of due diligence

“Due diligence” is a legal term to describe when a business’s leadership takes all steps that are reasonable in the circumstances to prevent the company from breaking the law.

Under the Act, a business can argue that it exercised due diligence to prevent the following types of criminal conduct:

  • deceptive telemarketing
  • deceptive notice of winning a prize
  • deceptive multi-level marketing plans

Having a compliance program is not, in itself, a defence to an allegation of criminal deceptive marketing. However, it could help your business to show that you took reasonable steps 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

Determining risk of deceptive marketing

If you market a product or service, you could be at risk of deceptive marketing.

Make sure you understand the law:

  • 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

Do’s and don’ts for certain marketing practices

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 small business that recently opened a day spa and wellness centre called the Caliceo Spa. The senior management team is young and does not have a lot of experience in running a business.

To boost margins, its 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 govern the running of a spa. 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 Chief Sales Manager 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 do’s 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 was of the view that compliance is expensive. It thought that building a comprehensive compliance program could wait until the business grew significantly. 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.

How to contact us

For general inquiries: contact the Bureau

DISCLAIMER: Because every situation presents unique facts, the information set out herein 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.

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