While trade associations provide a forum for members to communicate and collaborate, there are certain topics that should never be discussed. All too frequently, however, association members discuss price, customer allocation, supply issues and bid or tendering practices under the guise of “association business”. Not only does this conduct expose an association’s members to liability under the Competition Act, it also exposes the association (including individual directors and officers) to fines (of up to $25 million for each offence) and criminal sanctions (including, for individuals – jail for up to 14 years).
Liability under the Competition Act (whether directly or for aiding or abetting) can arise for associations in a number of situations, including:
- Where the association becomes a forum for competitors to agree on competitively sensitive matters such as prices (discounts, fee guidelines, surcharges), market allocation, and limits on supply.
- Where restrictive membership policies, fee guidelines, by-laws and disciplinary procedures exclude competitors from the market or have the effect of raising prices.
- Where the regulatory functions of the association create barriers to entry or restrict the ability of competitors to compete in a given market.
- Where members agree on particular bid response strategies (i.e. group boycotts).
- Where rules and procedures relating to advertising encourage false or misleading representations.
To help keep your association and its members on the right side of the Competition Act:
- Educate members and staff on the provisions of the Competition Act that affect the activities of the association and its members.
- Implement a credible and effective compliance program, with strict codes of ethics and conduct.
- Have clear membership criteria that are based on the legitimate objectives of the association and, where possible, foster a diverse board of directors (not just a board of competitors).
- For all association and sub-committee meetings stick to a pre-approved, legally vetted agenda and maintain accurate and detailed minutes. Consider as best practice beginning each meeting with a statement of the association’s commitment to Competition Act compliance and what that means in practical terms for member participation (e.g. no discussions as to price, market allocation, bids etc.).
- Obtain legal advice and exercise caution in the formulation and implementation of guidelines that relate to any important competitive aspect of members’ business activities or when issuing or suggesting rates or the treatment of surcharges (this activity is a potential powder keg and is usually best avoided).
- When disseminating or collecting member information use historical data, keep information in a generalized, aggregated form and where possible use an independent data collection agency. In all cases, ensure that participation in any information exchange is voluntary.
- Prohibit any discussion (formal and informal) between members that relates to current or future prices, costs, output levels, market allocations, business plans or bids.
- Conduct regular audits to ensure Competition Act compliance.
Where compliance with the Competition Act is concerned, there is no such thing as safety in numbers. When in doubt, seek legal advice about the activities being proposed or discussed by or on behalf of your association. Remember: Should your association discover that it was involved in activities that may violate the criminal provisions of the Act it can, in certain circumstances, approach the Bureau and request immunity from prosecution in return for co-operating with the Bureau’s investigation and any ensuing prosecutions.