Canadian COMPETITION LAW

November 25, 2014

Misleading advertising is squarely part of Canadian competition law. Violation of the Competition Act’s civil or criminal misleading advertising provisions can also lead to significant liability for companies or individuals. As a recent reminder of this, the Competition Bureau has announced that water heater supplier National Home Services (National) has agreed to pay a $7 million penalty for alleged false or misleading claims made by its sales agents.

The case has been settled under a consent agreement, which is available on the Competition Tribunal’s website. Of note, the settlement (discussed below) includes some very significant and intrusive competition compliance terms.

According to the Bureau, National’s sales agents made false or misleading claims relating to their identities, the purpose of their visits and claims that consumers’ water heaters were unsafe or eligible for no-cost upgrades. Based on the consent agreement, the Bureau’s concerns appear to include alleged claims by National’s sales agents that they were associated with the government (or quasi-government agencies), needed to access water heaters for safety purposes or that water heaters required replacement for regulatory reasons.

The consent agreement signed by National requires it to pay $1.5 in restitution to door-to-door sales customers and a $5 million administrative monetary penalty (AMP), adopt a stringent corporate compliance program and prohibits it from making a variety of types of claims to market its water heaters.

These penalties, though the result of a settlement with the Bureau, track the potential civil misleading advertising penalties available under section 74.1 of the Act. These can include AMPs of up to $10 million for companies, restitution to consumers, corrective notices and prohibition orders. The Bureau also appears to be increasingly requiring companies to adopt compliance programs as part of negotiated settlements (as it has done in this case).

Interestingly, the Bureau has also required, as part of this settlement, that National implement and pay for an independent Bureau-appointed compliance monitor for two years to supervise and report on: complaints, compliance and the implementation of National’s compliance program.

More specifically, the Bureau has required as a term of the settlement that pass/fail compliance testing and a subjective assessment be conducted by the monitor and that the supervision of National’s compliance focus on hiring, training, solicitation, management control, complaint tracking, discipline and compliance programs and procedures, among other things.

While the Bureau commonly comments on the importance of effective training and education as a key element of an effective and credible compliance program, requiring a monitor in this case indicates that the Bureau has indeed ramped up its focus on effective competition compliance.

In this respect, the Bureau is currently in the process of updating its competition compliance policies, which includes a new and significantly expanded draft Corporate Compliance Programs Bulletin. Consistent with the settlement in this case, the Bureau’s new draft Bulletin states that it may require that an independent compliance monitor be appointed where cases are settled by prohibition order or consent agreement.

This settlement is also a practical reminder that both the civil and criminal misleading advertising provisions of the Act apply to oral claims (i.e., are not restricted to print advertising) and claims made to a single person (i.e., do not need to be made to the public at large).

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