April 9, 2013
Yesterday the U.S. Department of Justice (DoJ) announced that it had reached a settlement with Chiropractic Associates Ltd. of South Dakota (CASD), an association composed of approximately 80% of practicing chiropractors in South Dakota, in relation to the association’s collective negotiations with insurers to set chiropractic service prices. According to the DoJ, apart from CASD members that were part of the same practice groups, the association’s members were not clinically or financially integrated and CASD’s actions were not necessary to achieve any consumer benefits.
In making the announcement, the DoJ said:
“Chiropractic Associates Ltd. of South Dakota negotiated contracts on behalf of all its members, including competing providers, resulting in increased prices for chiropractic services in South Dakota. … Today’s settlement promotes competition among health care providers and prevents collective action that harms consumers and violates the antitrust laws.”
This recent association settlement, which prohibits the CASD from establishing prices, terms for chiropractic services or negotiating with insurers on behalf of competing chiropractors, highlights the potential hazards of trade or professional association collective bargaining in the absence of competition law immunities/exceptions.
While joint negotiations may appear to be a natural role for trade or professional associations, i.e., a form of “collective bargaining”, in Canada collective negotiations by trade associations and their members can raise concerns, among other things, under the criminal price-fixing or output restriction agreement offences of the federal Competition Act (section 45) and has been the subject of criminal prosecution in a number of cases and Competition Bureau advisory opinions.
For example, in R. v. Nova Scotia Pharmaceutical Society, two Nova Scotia pharmacy associations were prosecuted for attempting to negotiate a fee tariff on behalf of their member pharmacists and pharmacy operators with third party insurers, through powers of attorney giving the associations the authority to act on behalf of members. While the accused were acquitted, the favorable outcome was based on the failure at the time to establish an element now been repealed from Canada’s conspiracy offences. In other cases, involving professional associations and their members, associations have also attempted to collectively negotiate fees on behalf of their members, which have on occasion also been accompanied by collective refusals to supply during negotiations.
More recently, the Bureau has taken a renewed interest in challenging association activities, which has included abuse of dominance challenges against The Canadian Real Estate Association and The Toronto Real Estate Board, as well as an ongoing advertising challenge that includes the Canadian Wireless Telecommunications Association and Canada’s three leading wireless providers. Some of the specific association related issues that the Bureau has recently identified include restrictions on types of professional service practice offerings; limitations on the number or range of members or ability of members to compete (e.g., through mandatory or suggested fee schedules or product quality standards that give some members an advantage over others); and conduct that reduces incentives to vigorously compete.
While the Competition Act includes exceptions for some types of collective bargaining activities, these are limited to certain union and employer association activities (i.e., negotiations relating to employee wages) and do not provide any blanket immunity to trade or professional associations. As such, unless trade or professional associations can point to other safe harbors for collective negotiations, such as legislative authority to collectively negotiate price or other competitively sensitive terms of supply, associations and their members may be exposed to potential criminal liability for such “collective bargaining” type activities.
Having said that, arguments may be possible under Canada’s amended conspiracy rules that some types of association “collective bargaining” activities should have the benefit of the ancillary restraints defense or are better reviewed under the Competition Act’s civil agreements provision, not as a per se criminal offence under section 45 of the Act. This, however, remains to be seen given the absence of case law yet. The Bureau has also over the years indicated that some collective bargaining activities by associations may be permissible – for example, where an association does not have the power to bind its members, no enforcement efforts are carried out by the association and members are clearly told that any fees or tariff is merely suggested and not required.
Other antitrust agencies, for example the Irish Competition Authority, have specifically set out models through which associations can remain to some extent involved in negotiations for members, while reducing the potential competition law risk. In addition, fee negotiations aside, trade or professional association efforts to formulate or “negotiate” other types of standard agreements on behalf of members may be unlikely to raise significant competition/antitrust issues – for example, where an association may be involved in preparing standard form agreements, but does not mandate (or recommend) terms relating to price, markets or output (and agreements are voluntary and may be amended or individually negotiated by members).
In sum, however, the treatment of joint negotiations involving trade and professional associations in Canada is still a developing area. This means that as a practical matter, joint activities that may touch on competitively sensitive topics (e.g., price, markets, customers or output) should be approached with caution by associations and advice sought to minimize risk.
For a copy of the DoJ’s news release see: Justice Department Challenges Joint Contracting on Behalf of South Dakota Chiropractors.
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