Compliance Training and Internal Audits

Introduction

Compliance training and internal auditing are important parts of an effective competition-law compliance system in Canada. Businesses operating under the Competition Act face risks arising from agreements with competitors, pricing practices, mergers, abuse of dominance, deceptive marketing, bid-rigging, wage-fixing and other conduct affecting competition.

A written compliance policy alone is not enough. Employees must understand the rules that apply to their work, while management must establish systems for identifying and correcting possible violations. Compliance training performs the preventive function, whereas internal audits perform an important monitoring and detection function.

The Canadian Competition Bureau considers training, communication, monitoring, verification, reporting and periodic program evaluation important elements of a credible and effective corporate compliance program.

Legal and Regulatory Framework

The principal legislation is the Competition Act, R.S.C. 1985, c. C-34. Depending upon the conduct involved, violations can result in criminal prosecution, civil orders, administrative monetary penalties, damages claims, reputational harm and substantial investigation costs.

An effective compliance system should therefore address both criminal and civil provisions of the Act. Particular attention should be given to cartel agreements, bid-rigging, wage-fixing and no-poaching agreements, deceptive marketing, abuse of dominance, restrictive agreements and merger-related risks.

The Competition Bureau's compliance guidance emphasizes that a compliance program should reflect the size, activities, resources and particular competition risks of the organization. A program is not effective merely because policies exist on paper. It should be reasonably designed, implemented, communicated and enforced throughout the organization.

Compliance Training

Training should explain competition law in practical language rather than simply reproduce statutory provisions. Employees should understand how competition rules affect their daily decisions.

Training should normally cover prohibited agreements between competitors, exchanges of competitively sensitive information, bid-rigging, pricing discussions, contacts with competitors, deceptive representations, dealings with suppliers and distributors, mergers and acquisitions, document management and procedures for reporting suspected misconduct.

Training should be risk-based. Employees dealing regularly with competitors, pricing, procurement, sales, marketing, mergers or strategic planning may require more detailed instruction than employees whose responsibilities create little competition-law exposure.

New employees working in higher-risk positions should receive training before or shortly after assuming their duties. Refresher training should also be conducted periodically because legislation, enforcement priorities, case law and business practices change.

Practical scenarios are particularly useful. For example, sales employees can be trained on what to do when a competitor attempts to discuss future prices. Procurement personnel can learn to identify suspicious similarities between competing bids. Marketing personnel can be taught how to substantiate performance claims and avoid misleading representations.

Attendance, training material and assessment results should normally be documented. Senior management should participate because visible management support strengthens the organization's compliance culture.

Internal Audits and Monitoring

Internal auditing tests whether the compliance program actually operates as intended. It can reveal weaknesses that training or written policies have failed to address.

Audits should generally be designed around the organization's competition-risk assessment. Higher-risk operations may require more frequent review.

An internal competition audit may examine contracts, pricing practices, communications with competitors, tender procedures, distributor arrangements, marketing material, merger documentation and compliance certifications. Where appropriate and legally supervised, businesses may also review relevant business communications and records for indications that competition policies are being ignored.

Auditing should not become merely a checklist exercise. Auditors should determine whether employees understand policies, whether reporting channels work, whether previous violations have been corrected and whether management responds appropriately when problems are discovered.

Organizations should also periodically evaluate the compliance program itself. Changes in legislation, court decisions, organizational structure, products, markets or enforcement experience may require policies and training to be revised.

Responding to Audit Findings

When an audit identifies a potential problem, the company should assess it promptly. Serious matters may require involvement of appropriately qualified legal counsel.

Possible responses include conducting further investigation, preserving relevant records, stopping questionable conduct, strengthening controls, retraining employees and taking appropriate disciplinary measures. The organization should also identify the underlying cause of the failure rather than simply correcting the individual incident.

An effective audit system therefore creates a continuous cycle:

Risk assessment → policies → training → monitoring → detection → corrective action → reassessment.

This process demonstrates that compliance is an ongoing governance responsibility rather than an occasional educational exercise.

Important Case Laws

1. R. v. Nova Scotia Pharmaceutical Society, [1992] 2 S.C.R. 606

The Supreme Court of Canada considered the conspiracy provisions of the Competition Act and explained important principles governing agreements that unduly restrict competition.

For compliance purposes, the case demonstrates why employees dealing with competitors must understand the legal risks surrounding coordination and agreements. Training should establish clear procedures for competitor contacts and escalation of questionable discussions.

2. Commissioner of Competition v. Canada Pipe Company Ltd., 2006 FCA 233

This important abuse-of-dominance case concerned Canada Pipe's loyalty-based distribution program. The Federal Court of Appeal addressed the meaning of anti-competitive acts and the assessment of substantial prevention or lessening of competition.

The case demonstrates that commercial programs that may appear legitimate can create competition concerns depending upon their purpose and market effects. Internal audits should therefore review rebate, exclusivity and loyalty arrangements where a company possesses significant market power.

3. Canada (Commissioner of Competition) v. Toronto Real Estate Board, 2017 FCA 236

The case concerned restrictions imposed by the Toronto Real Estate Board on the use of certain property information by its members. The Federal Court of Appeal upheld findings concerning abuse of dominance.

The decision illustrates the importance of examining restrictions on access to data and business information. Compliance reviews should therefore cover not merely prices but also rules controlling platforms, information and market access.

4. Tervita Corp. v. Canada (Commissioner of Competition), 2015 SCC 3

The Supreme Court considered a merger involving hazardous-waste landfill services and examined substantial prevention of competition and the statutory efficiencies framework that then applied.

The case demonstrates why competition-law compliance must extend to mergers and acquisitions. Legal and compliance personnel should participate early in transaction planning so that potentially significant competition issues are identified before completion.

5. Canada (Director of Investigation and Research) v. Southam Inc., [1997] 1 S.C.R. 748

Southam concerned newspaper acquisitions and became an important Canadian competition case concerning merger analysis and market definition.

From an audit perspective, the case illustrates why businesses contemplating acquisitions must carefully consider relevant product and geographic markets rather than relying solely upon their own commercial description of the market.

6. Richard v. Time Inc., 2012 SCC 8

The Supreme Court examined misleading commercial representations under Quebec consumer legislation while also discussing principles relevant to the general impression created by advertising.

The case is highly useful for compliance training because advertising claims must be examined as consumers are likely to understand them. Marketing audits should therefore evaluate the overall impression of advertisements rather than reviewing isolated words only.

7. Commissioner of Competition v. Chatr Wireless Inc., 2013 ONSC 5315

The proceedings concerned advertising claims relating to dropped calls by a wireless service provider. The case examined misleading advertising principles and the requirement for adequate and proper testing of certain performance claims.

The decision is especially relevant to marketing compliance. Employees should be trained not to publish comparative or performance representations unless the business possesses appropriate supporting evidence where the Competition Act requires substantiation.

8. Canada (Commissioner of Competition) v. Superior Propane Inc.

The Superior Propane litigation became a major Canadian merger precedent concerning competitive effects and efficiencies under the Competition Act.

For compliance programs, it demonstrates the economic complexity of merger review. Businesses involved in acquisitions should therefore maintain internal procedures requiring competition review of transactions that could materially affect market concentration.

Role of Management and Compliance Officers

Senior management is responsible for establishing a culture in which compliance is treated as part of normal business operations. Management should provide adequate resources, designate responsible personnel and ensure that compliance concerns can be reported without inappropriate retaliation.

A compliance officer should coordinate risk assessments, maintain policies, organize training, supervise monitoring activities and periodically report significant findings to appropriate senior management or the board.

Internal audit, compliance and legal functions should cooperate while maintaining clearly defined responsibilities.

Conclusion

Compliance training and internal audits are complementary mechanisms for preventing and detecting violations of Canadian competition law. Training gives employees the knowledge required to recognize legal risks, while internal auditing tests whether policies are actually being followed and identifies weaknesses before they develop into serious violations.

Cases such as Nova Scotia Pharmaceutical Society, Canada Pipe, Toronto Real Estate Board, Tervita, Southam, Richard v. Time, Chatr Wireless and Superior Propane demonstrate that competition risks can arise in many areas, including competitor relationships, dominance, advertising, distribution practices and corporate transactions.

A strong compliance system should therefore combine management commitment, risk assessment, clear policies, regular training, effective reporting mechanisms, proportionate internal audits, corrective action and periodic evaluation. When these components operate together, compliance becomes a continuous part of corporate governance rather than merely a written policy.