Competition Law and Franchising

AuthorFrank Zaid
ProfessionSenior Partner Osler, Hoskin & Harcourt LLP
The Compet ition Act1 (Act) regulates private busine ss activity i n order
to maintain and encourage competit ion in the economy of Canada. The
Act affects franch ising in many ways and its application can be broken
down into two categories. The f‌irst consi sts of criminal offences that
are regulated by direct prosecution under the crimin al law of Canada.
The other consists of trade pract ices that are rev iewable by the Compe-
tition Tribunal (Tribunal). Criminal offences of particular sig nif‌icance
to franchising i nclude price discri mination, promotional allowances,
price maintenance, pyramid selling, conspiracy, deceptive telemarket-
ing, and misleading advert ising.2 Relevant reviewable pract ices include
refusal to deal, exclusive dealing, market restriction, tied selling, abuse
of dominant position, mergers, delivered prici ng, as well as deceptive
marketing, promotional contests, a nd bargain pricing.
Administration of the Act is vested in the Commissioner of Com-
petition (Commissioner), who functions with a st aff allocated to t he
Competition Bureau (Bureau), which is part of Industry Can ada. In
1 R.S.C. 1985, c. C-34.
2 Amendments to t he Competition Act in 1999, Bill C-20, created a new civil
regime for mislea ding advertising to complement t he criminal provi sions. The
Commissione r can opt for either the crimi nal or civil route, but not both. Ibid.,
ss. 52(7) and 74.16.
fra nchise law132
general, the Commissioner invest igates and either recommends pros-
ecution by the Attorney General of Canada for criminal offences or
pursues administrative remedies at t he Tribunal for reviewable or civil
matters. The Commissioner investigate s, pursuant to section 10 of the
Act, whenever the Commissioner has reason to believe that a person
has contravened an order made under the Act, t hat grounds exi st for
making such an order or th at an offence has been or is about to be com-
mitted, or whenever the Commissioner is directed by the Minister of
Industry Can ada to make an inquiry. In practice, most inquiries by t he
Commissioner are the resu lt of informal complai nts and other informa-
tion brought to the attention of the Commissioner by private parties.
The Commissioner must also invest igate pursuant to section 9 when-
ever six persons resident in C anada apply to the Commis sioner with a
solemn or statutory declar ation stating t hat they are of the opinion that
a person has contravened an order made under the Act, that grounds
exist for making such an order, or that an offence has been or is about
to be committed.
The Act contains “whistleblower” protections for inform ants in
sections 66.1 and 66.2. If employees wish to report an offence th at they
reasonably believe ha s been committed, or will be committed, they can
request conf‌identiality for their identit y. Employees may also report any
obstacles they face while attempting to do something that is required
by the Act. Penalties exist for any employer who harasses, dismi ss-
es, or penalize s in any way an employee who has reported an offence.
Furthermore, the Act forbids an employer from punish ing an employee
for refusing to commit an offence or for doing something required by
the Act. The def‌inition of “employee” in the Act3 for the whistleblower
protection includes independent contractors. It may therefore be pos-
sible for a franchisee to benef‌it from the ex panded def‌inition of em-
ployee and to seek protection from the Act if the franch isee reports an
offence being committed or about to be committed by a franchisor.
If an inquiry under the Act is commenced, the Commissioner’s in-
vestigatory powers are broad. The Commi ssioner can make an ex parte
application to a judge of a superior or county court for an order that a
person named in the applicat ion attend for examination under oath or
solemn aff‌irmation, or produce records or written returns, includi ng
full disclosure a nd production of all contracts or agreements that he or
she may have entered into at any time with any other person.4 Further-
more, the Commissioner can make an ex parte application to a judge
3Ibid., s. 66.2(3).
4Ibid., s. 11.
Competition La w and Franchising 133
of a superior or county court for a warrant to enter into premise s and
to examine and take documents or records considered relevant to the
inquiry.5 Any order for the production of documents or for the search
and seizure of documents must respect solicitor-client privilege.
In addition to the Commissioner’s power of invest igation, private
parties have specif‌ic rights to seek redress directly. Private part ies can
sue and recover damages, from a person convicted of a crimina l offence
or who has violated an order of the Tribunal made on a reviewable mat-
ter.6 Section 36 does not provide damages for a practice t hat simply con-
stitutes a reviewable matter. Private pa rties can, however, apply for leave
of the Tribun al7 to bring an application for the reviewable matters found
in sections 75 and 77 (refusal to deal; and exclusive dealing, tied selling,
and market restrict ion, respectively). Those who might use this private
access regime include competitors seeking supply, terminated dealers
and franchise es, and competitors alleging they are unable to compete or
enter the market because of tied selling or exclusive dealing.
Private access under s ection 103.1 was introduced as part of amend-
ments to the Act in 2002. At the time, there was concern that competi-
tors might use this procedure to engage in st rategic litigation in order
to gain an advantage over their competitors. Accordingly, the following
safeguards were put in place: applicants must apply for leave of the
Tribunal; respondents can m ake representations to the Tribunal withi n
f‌ifteen days after receiv ing notice; applicants will not be granted leave
if the matter is or has been t he subject of an inquiry by the Commis-
sioner; damages cannot be awarded to aggrieved par ties; full costs can
be awarded against any party in accordance with the Federal Court
Rules; applications must be made no more th an one year after the prac-
tice that is the subject of the application has ceased; and an economic
test was added to the refu sal to deal provi sion contained in section 75
that requires the applicant to prove an adverse effect on competition.
Despite these safeguards, the possibility of strategic litigation re-
mains. Although the Tribuna l acts as a “gatekeeper” in granting leave,
it need only have “reason to believe” that t he applicant is “directly and
substantially affected.” Second, the time for the respondent to submit
representations to the Tribunal i s only f‌ifteen days, a nd the respondent
needs to act quickly or risks being involved in potentially di sruptive
and expensive proceed ings. Finally, there is no right for the respond-
5Ibid., s. 15.
6Ibid., s. 36.
7Ibid., s. 103.1.

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