Regular prices, sale prices, clearance sales – these terms are ubiquitous in the retail world and are a familiar component of marketing strategies intended to convince consumers that now is the best time to make a purchase and to encourage the sale of older inventory. However, retailers and brand owners should exercise caution when reaching too far with claims concerning the regular or sale prices of their products. The Competition Bureau has recently taken enforcement action against a number of Canadian retailers under the deceptive marketing practices and ordinary price claims provisions of the Competition Act for what it considers to be misleading regular price claims and deceptive clearance promotions. This recent enforcement serves as a warning of the very real risks associated with exaggerating just how good that “deal” pricing is in Canada and as a reminder of the importance of ensuring compliance with the relevant provisions of the Competition Act.
Price Claim Enforcement in Canada
The Competition Act contains five provisions dealing specifically with false or misleading price representations:
- Subsections 74.01(2) and 74.01(3), civil provisions which prohibit the making, or the permitting of the making, of any materially false or misleading representation, to the public, as to the ordinary selling price of a product, in whatever form;
- Section 74.04, a civil provision which prohibits "bait-and-switch" selling which occurs when a product is advertised at a bargain price, but is not available for sale in reasonable quantities;
- Section 74.05, a civil provision which prohibits the sale or rent of a product at a price higher than its advertised price in the market to which the advertisement relates; and,
- Section 54, a criminal provision which prohibits the supply of a product at a price that exceeds the lowest of two or more prices clearly expressed in respect of the product.
Price representations may also be addressed under the general provisions against false or misleading representations [Section 52 or Paragraph 74.01(1)(a)].
To assist retailers in complying with these provisions, the Competition Bureau maintains Ordinary Price Claims Enforcement Guidelines, which are useful in determining whether price claims may be subject to review and investigation, and proceedings before the Competition Tribunal. Generally speaking, the Guidelines set out that a claim to a sale price may only be made if more than 50% of the product volume is sold at or above the regular price over a one-year period (volume test), or if a “good faith” volume of the product is offered at or above the regular price more than 50% of the time over a six-month period (time test).
Recent Price Claims Proceeding Against HBC
On February 22, 2017, the Competition Bureau announced that it had completed an investigation of the price claim practices of the Hudson’s Bay Company (HBC) in relation to the sale of mattress sleep sets, and had initiated a proceeding with the Competition Tribunal under the deceptive marketing practices and ordinary price claims provisions of the Competition Act. In its application, the Competition Bureau alleges that HBC had engaged in deceptive marketing practices by informing consumers that they were purchasing “clearance” sleep sets when the sleeps sets were actually being ordered new from a factory supplier. The application also alleges that the “regular prices of the sleep sets were so inflated above what the market would bear that sales at the regular price were virtually non-existent”, citing several advertisements for sleep sets printed in weekly flyers that the Bureau claims fail both the volume and time tests. The Competition Bureau is seeking an order requiring HBC to pay an administrative monetary penalty, which could amount to as much as $10 million, and requiring HBC to send out public corrective notices.
While the proceeding against HBC is ongoing before the Competition Tribunal, previous ordinary price claim cases have commonly settled via consent agreement with the Competition Bureau, resulting in penalties of up to $1.2 million. However, retailers should take note that as a result of 2009 amendments to the Competition Act there is now a $10 million ceiling for first-time offences by corporations.
Retailers should be aware of the strict standards that the Competition Bureau will apply when deciding whether to investigate price claims. While placing products “on sale” is an age-old marketing strategy, the Competition Bureau has recently shown that it is keen to pursue enforcement where its guidelines are not met, particularly in cases where there is a large difference between the regular and sale price, where there is little evidence that a regular price is being used, or where a “clearance” sale relates to new product. A review of advertisements and price regimes prior to publication is recommended to confirm compliance with the Guidelines and relevant Competition Act provisions and avoid significant penalties and potential negative publicity.