This past Friday, the Canadian Competition Bureau (the Bureau) released a statement on the application of the Competition Act (the Act) to buy-side agreements such as no-poaching and wage-fixing agreements. The Bureau advised that it will only assess buy-side agreements under the civil enforcement provisions of the Act and not under the criminal conspiracy provisions. The statement confirmed what many competition lawyers in Canada already believed to be the case based on the explicit wording of the Act, but it is noteworthy because the Bureau had never before taken an explicit position on this issue, and it differs significantly from the position in the United States.
What is a buy-side agreement?
A buy-side agreement involves the purchase or acquisition of goods or services, such as the acquisition of services from employees. Buy-side agreements include agreements whereby companies competing against each other in recruiting and retaining employees agree to terms of employment, agree to fix wages (“wage-fixing”), or agree not to recruit each other’s employees ("no-poaching" agreements).
By way of contrast, a supply-side agreement focuses on the sale or supply of products. A supply-side agreement could include an agreement between sellers to allocate customers or sales regions, to eliminate or reduce the production or supply of a product, or to fix prices.
Bureau approach to buy-side agreements
In its statement, the Bureau clarified that because section 45 of the Act – the criminal conspiracies provision – applies only to supply-side agreements, it will “not assess buy-side agreements for the purchase of products and services – including employee no-poaching and wage-fixing agreements – under section 45.” This means that these agreements are not illegal.
However, the Bureau indicated it may assess buy-side agreements under section 90.1 of the Act – a provision that has significantly fewer teeth than section 45. Section 90.1 is a civil provision that governs agreements when they are likely to substantially lessen or prevent competition. An agreement between competitors must meet the following two conditions in order for it to contravene section 90.1:
- The agreement must be “existing or proposed” (i.e., an agreement that has concluded or occurred in the past would not fall subject to section 90.1); and
- The agreement must substantially prevent or lessen competition, which the Bureau notes is not a low threshold.
Where the Competition Tribunal finds that an agreement or arrangement meets the conditions of section 90.1, it may make an order prohibiting any person (whether or not an actual party to the agreement) from doing anything under the agreement; or requiring any person to take any other action, but only with the consent of that person and the commissioner of competition.
As such, any buy-side agreements between competitors would, even if the conditions of section 90.1 are met, be subject to much more limited remedies than under section 45 (which include prison terms and/or significant monetary fines).
The Bureau’s statement does not revolutionize the legal treatment of buy-side agreements in Canada. Rather, the stated approach is in keeping with the wording of the Act and, specifically, the explicit removal of the word “purchase” from section 45 of the Act as part of the 2009 amendments. Section 45 used to make it an offence to agree or arrange with another person to unduly prevent or lessen competition in the purchase of a product, but it no longer does.
However, the statement makes clear that the Canadian approach differs drastically from that south of the border, where the United States Department of Justice has indicated it will “criminally investigate naked no-poaching or wage-fixing agreements that are unrelated or unnecessary to a larger legitimate collaboration between the employers.”
Its recent statement – for which the Bureau sought advice from the Department of Justice and the Public Prosecution Service of Canada – comes on the heels of the House of Commons considering issues related to buy-side discussions this past July, which likely acted as an impetus for the Bureau’s clarification.
The Bureau also noted it will outline its enforcement approach to buy-side agreements in further detail in its upcoming update to its Competitor Collaboration Guidelines, so stay tuned for further updates in this area.
Although the Bureau will not seek criminal enforcement of buy-side agreements in Canada, companies should continue to seek legal advice prior to engaging in any communications with competitors. Such communications, even if limited to buy-side discussions, can nonetheless run afoul of the civil provisions of the Act and the United States has indicated that it will criminally enforce buy-side agreements.