Canada’s competition laws come under scrutiny after grocery business controversies

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A group of MPs will start considering changes to Canada’s antitrust rules next month, prompted in part by a series of controversies in the grocery business.

Supermarket chains have been under scrutiny from Ottawa since last spring, when the country’s three largest grocers opted to simultaneously cut $2-per-hour pandemic pay bonuses for front-line workers.

Liberal MP Nathaniel Erskine-Smith, a member of the House of Commons’ standing committee on industry who has become one of Big Grocery’s loudest critics during the pandemic, said the wage cuts exposed “deficiencies” in the Competition Act.

“For me, personally, I became more aware of the deficiencies in the Competition Act by virtue of our investigation into the national grocers and that reduction of pandemic pay,” he said in an interview. “And then, consulting with other experts, I’ve seen other deficiencies in our act.”

There was, I think, a recognition across parties that the commissioner does not have the tools he needs

Liberal MP Nathaniel Erskine-Smith

The industry committee has now decided to devote a series of meetings in April to conduct a study of competitiveness, including reforms of the act.

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At times during the pandemic, the committee has served as what Erskine-Smith called “a forum to express some outrage” about the big grocers’ behaviour.

In July, the committee summoned the heads of the three largest grocers — Loblaw Cos. Ltd., Sobeys’ parent company Empire Co. Ltd. and Metro Inc. — to explain why they cut their respective pay bonuses on the same day. And late last year, the head of the Competition Bureau fielded questions on why his agency hadn’t investigated the bonus cancellations or the new fees the supermarket chains introduced on farmers and food processors during the pandemic.

“There was, I think, a recognition across parties that the commissioner does not have the tools he needs,” Erskine-Smith said. “As the United States moves forward more seriously with a really strong antitrust lens, I think we need to update our laws and do the same.”

U.S. President Joe Biden appears to be steeling for major antitrust reform and has named Columbia law professor Tim Wu to the National Economic Council, a move widely considered to be part of a broader plan to take on the dominance of tech giants.

“Competition and antitrust issues are going to continue to loom large in the North American policy conversation,” Erskine-Smith said. “It would be a mistake for us not to seize this moment to update our own laws.”

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During the committee hearing with the grocery bosses last year, Metro chief executive Eric La Flèche said he made several calls to competitors in May and June to ask whether they planned to end the pandemic pay. Loblaw president Sarah Davis testified that she sent a “courtesy email” to competitors to inform them in advance of her decision to end the bonuses.

“It was one of those rare moments when you’ve got unanimity across party lines, like, ‘This isn’t right,’” said Conservative MP Michelle Rempel-Garner, who participated in the hearing. “This is an opportunity for either non-partisan debate or policy action moving forward.”

Metro, Loblaw and Empire have strongly denied any wrongdoing and said they did not coordinate their decisions to cut the bonus pay.

Competition Commissioner Matthew Boswell has publicly said the wage cuts are cause for concern, but has not investigated them because the Competition Act doesn’t consider wage fixing to be criminal.

The bureau can pursue criminal investigations when competitors conspire on the price of goods, but agreements to tamp down the price of business inputs — for example, the cost of a bag of flour or the hourly wage of an employee — are treated differently, because that kind of behaviour can sometimes result in cheaper prices for consumers.

“That puts us out of sync with our biggest trading partner,” Boswell told the industry committee in December, noting that the U.S. Department of Justice has issued guidance that it will treat wage-fixing and no-poach agreements between competitors as criminal.

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The grocery industry has also faced mounting complaints from farmers and food processors about fees and fines. Both Walmart Inc. and Loblaw imposed new fees last year to help cover the cost of e-commerce upgrades and other infrastructure investments.

Boswell said he doesn’t consider the fees and fines an abuse of dominance, but rather of an imbalance in bargaining power.

“The reality is that competition law in Canada does not provide for a tool to regulate imbalances in bargaining power,” he said to the committee.

John Sotos, a lawyer at Toronto-based Sotos LLP, said the root cause of the issues facing the grocery sector is the rampant consolidation permitted by the Competition Bureau that has pursued one objective over all others: “Sell stuff to consumers cheap.”

Huy Do, co-leader of the antitrust and competition group at Fasken Martineau DuMoulin LLP, said Canadian industrial policy has historically been more permissive of market concentration because it was seen as necessary to achieve the economies of scale to serve consumers spread across a big, sparsely populated country.

But he said a new school of thought is emerging in North America, one less preoccupied with consumer prices.

“Markets and consumers are much more sophisticated these days and price isn’t really the only issue of competition,” said Do, who also serves as chair of the Canadian Bar Association’s Competition Law Section.

He also cautioned against pursuing policy reforms just to keep pace with the U.S.

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“Part of it is the law, but a big part of it is their funding,” he said. “The bureau just isn’t funded the way a real antitrust agency is funded in other jurisdictions.”

A spokesperson for Industry Minister François-Philippe Champagne said the ministry has already engaged the Competition Bureau to analyze how digital innovation is impacting competition.

“The Competition Act has as its purpose, among other things, to promote the efficiency and adaptability of the Canadian economy,” the spokesperson said in an email. “To the extent that potential legislative measures can further this goal, our government will always consider potential opportunities.”