Canadian COMPETITION LAW

November 15, 2021

The Supreme Court of British Columbia recently declined to certify a proposed class action claim based on section 45 of Canada’s federal Competition Act (criminal conspiracy offences) on the basis that section 45 only applies to downstream (i.e., sell-side) agreements between competitors and not to the upstream (i.e., buy-side agreements) Tim Hortons franchise agreements being challenged in this case.

In this case, Latifi v. The TDL Group Corp. (Latifi), the plaintiff challenged a “no-hire” provision in Tim Hortons’ standard franchise agreement under which franchisees covenanted not to employ or seek to employ employees of a Tim Horton’s corporate restaurant or other franchisee. The plaintiff argued that Tim Hortons’ no-hire clause limited the mobility of employees and suppressed their wages by restricting competition and, as such, violated section 45 of the Competition Act.

Under section 36 of the Competition Act, plaintiffs may commence civil actions and class actions for contraventions of the criminal sections of the Competition Act, including sections 45 (conspiracy), 46 (foreign-directed conspiracies), 47 (bid-rigging) and 52 (criminal misleading advertising).

The key issue in this case was whether section 45 of the Competition Act applies to upstream (i.e., “buy-side”) agreements relating to the purchase of goods or services, including employee services, or is restricted to downstream (i.e., “sell-side”) agreements relating to the sale/supply of products and services.

The Court in Latifi held that the plain language of section 45 of the Competition Act, together with its legislative history, meant that it applied only to downstream agreements between competitors. In coming to this conclusion, the Court focused on the language of section 45, which prohibits price-fixing, market allocation/division and output restriction agreements between competitors in relation to the “supply” of a product (as compared to the previous section 45, which was amended in 2009 and referred also to the “purchase” and “supply” of a product). For more information, see: Competition Act amendments.

In its analysis, the Court relied on the recent Federal Court decision in Mohr v. National Hockey League and the Competition Bureau’s (Bureau’s) Competitor Collaboration Guidelines (Collaboration Guidelines).

In Mohr, the Federal Court held that all three conspiracy offences under section 45 of the Competition Act apply solely to either the “supply” or the “production and supply” of a product (for a discussion of the Mohr case, see: here). In the Bureau’s Collaboration Guidelines, the Bureau’s position is that section 45 the Competition Act only applies to sell-side agreements.

The recent review by Canadian courts and the Bureau as to whether section 45 applies to downstream agreements between competitors should be understood in relation to section 90.1 of the Competition Act (the civil provision governing agreements between competitors, which came into effect in 2009 when the Competition Act was amended together with the current section 45). Unlike section 45, which sets out three per se criminal offences (i.e., with no competitive effects required), section 90.1 of the Competition Act only applies to agreements between competitors that prevent or lessen competition substantially in a relevant market and, as such, include buy-side agreements if they substantially harm competition (e.g., buying group related agreements).

The Bureau’s reasoning in distinguishing its enforcement of upstream competitor agreements between sections 45.1 and 90.1 has partially been on the basis that, whereas downstream or sell-side conspiracy agreements are generally considered unambiguously harmful to consumers, upstream or buy-side agreements can, in some situations, serve legitimate, pro-competitive purposes (e.g., allowing buying groups of small independents firms to compete with manufacturers or suppliers with market power). As such, section 90.1 of the Competition Act does not automatically condemn buy-side agreements but, like the rule of reason analysis under Section 1 of the U.S. Sherman Act, requires a consideration of overall competitive effects of agreements between competitors.

The Bureau’s position that section 45 excludes upstream agreements between competitors is also based on legal advice it received from the Department of Justice, which included a review of the current and former language of section 45 of the Competition Act and, in particular, the repeal of the term “purchase” that was included in the former section 45 (see: Competition Bureau statement on the application of the Competition Act to no-poaching, wage-fixing and other buy-side agreements).

With respect to enforcement policy, Canada’s Commissioner of Competition (Commissioner), in his recent annual speech to the Canadian competition bar recognized that concerns have been raised regarding perceived gaps in Canadian conspiracy/cartel law in terms of its application to potentially anti-competitive upstream competitor agreements. In this respect, the Commissioner expressed concerns that the current section 45 of the Competition Act may not adequately protect workers from “egregious” agreements between competing employers to fix employee wages or limit their mobility.

Implications

Overall, this recent British Columbia decision adds to a growing consensus among both Canadian courts and the Bureau that section 45 of the Competition Act does not currently apply to upstream (i.e., buy-side) agreements between competitors.

Practically, this means that it will be increasingly difficult (if not impossible) for plaintiffs to commence private actions or class actions under section 45 of the Competition Act in relation to upstream competitor agreements. This may allow some clearly anti-competitive upstream agreements, with no obvious pro-competitive purposes, to escape Canadian competition law enforcement unless section 45 is amended to address this gap.

Whether, however, the federal government deems this apparent gap in Canadian conspiracy/cartel law that impacts Canadian labour markets worthy of legislative reform in the near future still remains to be seen.

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