Skip to content

Competition compliance risks during the COVID-19 crisis: Increased scrutiny of price-gouging and business collaboration

Burtley G. Francis and David Slipp

During this unprecedented period of social isolation and economic uncertainty brought about by the COVID-19 pandemic, businesses are rapidly re-structuring their operations and adjusting their practices in order to comply with federal and provincial health and safety directives. However, it is important for businesses (particularly, manufacturers, suppliers, and retail vendors) to ensure that appropriate systems are maintained to ensure gaps are not created which allow or encourage engaging in anti-competitive conduct.

The Competition Bureau in its March 20, 2020 statement promised increased vigilance against anti-competitive conduct under the federal Competition Act during this period.1 In addition to the federal regime, businesses must now also be mindful of an additional layer of regulation at the provincial level associated with the declaration of states of emergency by Provincial governments.

This article highlights two particular compliance risks: pricing offenses and business collaboration.

Pricing offence: Price-gouging

Under normal circumstances, scarcity of supply coupled with higher demand would expectedly lead to increased prices for consumers (as increased acquisition costs for inventory in the supply chain are passed through to consumers in the form of higher retail prices). However, during this trying time, consumers (as well as regulators and government officials) are hyperaware of price increases and actions which could be considered taking advantage of the situation (i.e. price-gouging).

Businesses should be aware that increasing prices during a declared state of emergency could be an offence in some provinces. For example:

  • In Nova Scotia, under the Emergency Management Act it is an offense to charge higher prices for food, clothing, fuel, equipment, medical or other essential supplies or for the use of property, services, resources or equipment during a declared state of emergency.2 A person found guilty of price-gouging would face fines (up to $10,000 for individuals, $100,000 for companies); or imprisonment of up to six months; or both.3 Additionally, the court has discretion to increase the fine by an amount equal to the financial benefit that was acquired by the guilty party.4
  • Ontario, by emergency order announced on March 28, 2020 that it would issue fines of up to $500,000 and seek imprisonment for up to one year for those charging unfair prices for “necessary goods” namely5:
    • Masks and gloves used as personal protective equipment in relation to infections;
    • Non-prescription medications for the treatment of the symptoms of the coronavirus;
    • Disinfecting agents intended for cleaning and disinfecting objects or humans; and
    • Personal hygiene products, including soap products and paper products.

Pricing offence: Price maintenance

It is an offense under the Competition Act, to influence upward or discourage a reduction of a product’s retail price.6 Price maintenance may occur when a supplier prevents a customer from selling a product below a minimum price by means of a threat, promise or agreement. It may also occur when a supplier refuses to supply a customer or otherwise discriminates against them because of their low pricing policy.

The pressure to maintain a certain level of resale prices may also come from customers of a supplier. As an example, a retailer may try to induce their supplier to (i) discourage the supplier’s other customers (i.e. competing retailers) from selling certain products below an established (profitable) price or; (ii) refuse to supply competing retailers who are selling the product at a lower price than the inducing customer. In that case, the inducing customer would be protected from competition and market prices for consumers remain higher than they otherwise would have been.

Suppliers and retailers should be cognizant of the potential for greater fallout from even the suggestion of price maintenance at this time. There have been recent reports in the media of individuals stocking up on popular items and reselling them at a substantial profit. Retailers should consider putting simple safeguards in place, such as quantity limits, to avoid being caught up in the gravity of a negative media story or to prevent accusations of contributing to another’s misdeeds.

Business collaboration

Under the Competition Act, discussions between competing businesses relating to (i) fixing, maintaining, increasing or controlling prices, (ii) allocating sales, territories, customers or markets, or (iii) fixing, maintaining, controlling, preventing, lessening or eliminating the supply of a product are severely scrutinized and may violate the criminal conspiracy provisions of the Act.7 There are other activities which also garner anti-competitive concerns, and may result in review under the civil provisions of the Act.8 Generally, these would include agreements or arrangements between members that are likely to prevent or lessen competition substantially.

Amid supply shortages for essential products, however, collaboration among businesses to secure their respective supply chains is of benefit to the wider public. Recognizing this, following its initial statement in March the Competition Bureau released a further statement on April 8, 2020 stating that good faith collaboration between competitors, such as the formation of buying groups to strengthen purchasing power will not be treated as actionable form of competitor collaboration at this time.9 However, such collaborations should be taken only to ensure access to the “necessities of life for all Canadians”.

Businesses should be very aware, though, that the Competition Bureau will have “zero tolerance” for any attempts to abuse this flexibility. The Competition Bureau will not be lenient in its enforcement against collaboration by competitors aimed at maintaining their profitability.

To assist businesses avoid engaging in prohibited collaboration, the Competition Bureau has established a team dedicated to assess and provide guidance to businesses seeking to collaborate. Interested parties can contact the Competition Bureau by emailing CB-COVID19-BC@canada.ca.

Conclusion

The COVID-19 pandemic is unprecedented in modern history and is having wide-reaching social and economic effects. The Competition Bureau of Canada will be increasingly alive to claims of collusion between parties to increase the price of goods and services. At the same time, there will be increased leniency for businesses to collaborate with each other in good faith in order to deliver the supplies Canadians need during this period of supply shortages and uncertainty. Retailers should check for any provincially-instituted restrictions on price increases before deviating from a product’s normal selling point.


1 Statement from the Commissioner of Competition regarding enforcement during the COVID-19 coronavirus situation, March 20, 2020.
2 Section 16.
3 Section 23.
4 Section 23A.
5 Ontario Protecting Consumers from Price Gouging
6 Section 76(1).
7 Section 45.
8 Section 90.1.
9 Competition Bureau statement on competitor collaborations during the COVID-19 pandemic, April 8, 2020.


This article is provided for general information only. If you have any questions about the above, please contact a member of our Competition Law group.

Click here to subscribe to Stewart McKelvey Thought Leadership articles and updates.

SHARE

Archive

Search Archive


 
 

CAPSA releases guidelines on Capital Accumulation Plans and Pension Plan Risk Management

September 11, 2024

Level Chan and Dante Manna On September 9, 2024, the Canadian Association of Pension Supervisory Authorities (CAPSA) released the long-awaited final revisions to Guideline No. 3 – Guideline for Capital Accumulation Plans (CAPs) and the…

Read More

Nova Scotia legislative update: “Stronger Workplaces for Nova Scotia Act” – Bill No. 464

September 6, 2024

Sean Kelly and Tiegan A. Scott On September 5, 2024, the “Stronger Workplaces for Nova Scotia Act” (Bill No. 464) was introduced in the Nova Scotia House of Assembly for first reading by the Honourable Jill Balser…

Read More

Historic human rights ruling: Alberta tribunal sets record with landmark damages award, redefining the rules on compensation and deterrence

September 3, 2024

John A.C. Morse and Lauren Sorel The Human Rights Tribunal of Alberta (the “Tribunal”) recently awarded three complainants a total of $273,274.91 in compensation, with $155,000.00 of this amount designated as general damages – a…

Read More

Zoning changes and constructive taking: Newfoundland and Labrador Court of Appeal affirms the finding in Index v Paradise

August 28, 2024

Stephen Penney and Megan Kieley1 The Newfoundland and Labrador Court of Appeal’s recent decision in Index Investments Inc v Paradise (Town)2 is a significant decision for municipalities. The Court of Appeal endorsed the Newfoundland and…

Read More

Immigration red flags: five organizational issues that open employers to risk

August 15, 2024

By Kathleen Leighton & Brittany Trafford The Temporary Foreign Worker Program (“TFWP”) and International Mobility Program (“IMP”) provide Canadian employers the opportunity to hire foreign workers to address their labour needs, particularly when qualified Canadians…

Read More

Supreme Court of Canada denies leave to appeal of Alberta ruling on post-death life insurance conversion (Part II)

August 15, 2024

This is the second in a two-part Thought Leadership series on a recent life insurance case out of Alberta, and the implications for life insurers. Michelle Chai and Liz Campbell1 Part I of this two-part series…

Read More

Changing the rules again: Another round of changes impacting Canada’s Competition Act

August 14, 2024

By Deanne MacLeod, K.C., Burtley G. Francis, K.C., and David F. Slipp On June 20, 2024 the Fall Economic Statement Implementation Act, 2023 (the “Economic Statement”) received Royal Assent and became law. The Economic Statement…

Read More

Supreme Court of Canada denies leave to appeal of Alberta ruling on post-death life insurance conversion

August 13, 2024

This is the first in a two-part Thought Leadership series on a recent life insurance case out of Alberta, and the implications for life insurers. By Michelle Chai and Liz Campbell1 The Supreme Court of…

Read More

Canada’s investment in hydrogen has substantial implications for the Atlantic Canadian wind power sector

August 6, 2024

This articles follows our recent Thought Leadership piece on the Federal Government’s announcement of significant investment through the Smart Renewables and Electrification Pathways Program in Nova Scotia clean energy projects. By Dave Randell, Sadira Jan,…

Read More

New announcements in the Canada-Nova Scotia partnership for the clean energy future

August 1, 2024

By David Randell, Sadira E. Jan, Daniel Mowat-Rose, and Marina Luro1 Natural Resources Canada has released two important announcements relating to Nova Scotia’s transition to a green economy: Collaboration framework for a sustainable future Canada’s…

Read More

Search Archive


Scroll To Top