2.5: Business Legislation in Canada

Overview

Business legislation and regulation in Canada serve several purposes, including promoting economic development and competitive advantage while also protecting the public interest. Finding the balance between appropriate regulation to encourage business growth and over-regulation, which may constrain businesses, is a difficult and constantly evolving challenge. As a result, at every level, most governments create regulations to support businesses, encourage investment, and grow the economy.

An important factor for business success is understanding the rules and regulations governing the business context. Across Canada, in every jurisdiction, there are regulations that businesses abide by in order to operate. The level and extent of regulation can vary depending on the type and form of business. A sole proprietor offering job placement services in rural Ontario will have different regulations than an offshore oil drilling corporation in Newfoundland.

As noted, there are many regulations governing how businesses are allowed to operate in Canada; in fact, there are too many to mention here, but some fundamental regulations, called Acts, include:

• The Constitution Act
• Sale of Goods Act
• Consumer Protection Act
• The Federal Competition Act
• Environmental Protection Act
• Personal Property Securities Act (Ontario)

The Constitution Act and the Duty to Consult Indigenous Peoples

The Constitution Act of 1982 recognizes and affirms the existing Aboriginal and treaty rights of Indigenous people (Section 35). To protect these rights, the doctrine of the duty to consult and, where appropriate, accommodate Indigenous groups was developed by Canadian courts. Furthermore, the United Nations Declaration on the Rights of Indigenous Peoples, endorsed by Canada in 2010, provides that member states must consult and cooperate with Indigenous peoples on certain matters, such as “legislative or administrative measures that may affect them,” to obtain their free, prior and informed consent. The duty to consult is a key foundation to the rules and regulations that govern how businesses and industry interact with each other and with First Nations as having inherent and treaty rights. The Government of Canada is developing and updating programs and policies to improve access to business and investment opportunities generated via international trade for Indigenous Peoples.

Sale of Goods Act

The  Sale of Goods Act  was developed to regulate the sale of goods where no contract explicitly exists. The intent is to provide a basic set of regulations to follow when selling goods in Canada. The regulations provide general rules to govern transactions. Businesses and individuals are allowed to enter into contracts according to the Sale of Goods Act regulations. Most individuals and businesses prefer to develop specific terms and conditions to govern their transactions (for example, payment terms, delivery dates, dispute resolution and other unique conditions).

It is important to note that some regulations do not allow businesses or individuals to enter into a contract outside the regulations—for example, the Environmental Protection Act or the  Landlord Tenant Act.

The Sale of Goods Act only applies to goods sold or transferred between two parties. The act allows sellers to recoup goods in transit if the purchaser fails to pay to offset the potential loss. During bankruptcy proceedings of a purchaser, sellers often have difficulty reclaiming their goods. Typically, these items are part of the liquidation event, and the seller receives their respective portion of the proceeds from the sale.

Under the Sale of Goods Act, sellers have obligations which they must follow. The regulations are designed to help protect the buyer from unfair actions by the seller. The following is a list of factors that every business person should be aware of:

• The seller can only sell goods they own and have the right to sell. This is known as having a “good title.” Sellers cannot transfer any goods for which they do not have a good title.
• Goods cannot be sold with encumbrances (a claim against a good by someone other than the person representing or claiming ownership). For example, a seller could not sell a car to the purchaser if the car had a lien placed on the vehicle from a bank. The seller must clear the lien before transferring the title to the purchaser.
• A seller must sell all goods at a standard of quality which allows them to be sold to others. For example, a seller cannot sell inventory to a retailer which, upon delivery, is found to be in such poor condition that it cannot be sold to customers.
• Sellers must present samples of the goods that are a fair representation of delivered merchandise. A seller could not, for example, show a chair that fits an adult and then deliver a chair that only fits a child.

An important condition of the Sale of Goods Act is the transfer of title from the seller to the buyer. This is very important relative to the risk of ownership. For example, if a buyer in Ontario purchased goods from a seller in British Columbia and, during transit, the goods were damaged beyond repair, who is responsible for the cost of the loss? The question of who owns the goods at what point in the journey is critical; whoever owns the goods bears the burden of the loss.

Risk follows title or ownership, so unless otherwise agreed, the goods remain at the seller’s risk until the property is transferred to the buyer. When the property is transferred to the buyer, the goods are at the buyer’s risk whether delivery has been made or not. There are five rules in the Act which explain who has title.

• Rule 1: The title of the goods passes to the buyer when the contract is made regardless of whether the payment or delivery has been made.
• Rule 2: The title of the goods passes to the buyer after the seller makes modifications to the goods as agreed upon in the contract.
• Rule 3: The title of the goods passes to the buyer after the buyer verifies, weighs, measures or tests something with regards to the goods as agreed upon in the contract.
• Rule 4: Where goods are delivered to the buyer on approval or on “sale or return” basis, title passes to the buyer once they indicate their approval to the seller. (Usually the buyer has a fixed timeframe in which to return goods.)
• Rule 5: Where there is agreement for the seller and the buyer about the purchase of goods that are to be produced and delivered at a future date, even if such goods are unidentified at the time of the agreement being made, title to such goods passes to the buyer either when the goods are set aside for the buyer or when the goods are delivered either to the buyer or to a carrier like a shipping company for purposes of delivery to the buyer.

 The Competition Act

The Competition Act  provides for the general regulation of trade and commerce concerning conspiracies, trade practices and mergers affecting competition. The Competition Act plays an important role in the public procurement process, as governments should favour a competitive bidding process to protect public value. Regulations are included to ensure that small and medium-sized enterprises have an equitable opportunity to participate in the Canadian economy and provide consumers with competitive prices and product choices.

The  Competition Act prevents people or organizations from working with a competitor of that person or organization with the goal to conspire, agree or arrange activities that prevent competition. Specifically:

• price fixing
• dividing up territories
• controlling production

Attribution

“2.5: Business Legislation in Canada” is adapted from “Chapter 4: Business Legislation in Canada” from Business Law and Ethics Canadian Edition by Craig Ervine, licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.

The multiple choice questions in the Checkpoint boxes were created using the output from the Arizona State University Question Generator tool and are shared under the Creative Commons – CC0 1.0 Universal License.