Additional Information: Standing Senate Committee on Transport and Communications (May 16, 2023)

Statement on Updated Compliance and Enforcement Policy

Key Messages:

• On July 1, 2022 the Agency introduced its updated Compliance and Enforcement Policy reflecting our evolution to a new results-based and risk-informed approach to compliance assurance. The updated Policy is outcome focused and supports the Agency’s three core mandates.
• The Policy sets out how the Agency targets its compliance monitoring and enforcement resources to maximize proactive compliance by regulated entities with the legal obligations the Agency oversees.

Background:

• On July 1, 2022 the Agency introduced its updated Compliance and Enforcement Policy reflecting our evolution to a new results-based and risk-informed approach to compliance assurance.
• The Policy sets out how the Agency targets its compliance monitoring and enforcement resources to maximize proactive compliance by regulated entities with the legal obligations the Agency oversees.
• The Policy is outcome focused and supports the Agency’s three core mandates. of providing consumer protection for air passengers and ensuring a national transportation system that is accessible and runs efficiently and smoothly.
• The Policy speaks to four guiding principles:
  • Results-based enforcement: In securing compliance, the measures applied are intended to advance the outcomes pursued by the Agency.
  • Data-driven, risk-informed decision making: the Agency’s work is informed by data to identify potential non-compliances and optimize resource allocation;
  • Fair, objective and consistent processes: Rules and processes for inspections, investigations and enforcement, are clear and applied consistently and objectively; and
  • Transparency: the Agency publishes the results of its formal enforcement actions on its website.
• Recognizing that public interest objectives are best served when regulated entities undertake and comply with applicable standards and legal obligations voluntarily, the Agency resolves non-compliance by applying a graduated approach to enforcement, using informal and formal enforcement measures.
• Guided by the Policy, the Agency employs a number of different tools and activities to foster compliance and address instances of non-compliance such as: compliance promotion, verification, enforcement (cautionary notices and administrative monetary penalties) and follow-up.

Enforcement actions

A Designated Enforcement Officer's (DEO) response to non-compliance escalates in severity depending upon the nature of the violation and the compliance history of the regulated entity. When a DEO believes that a regulated entity has committed a violation of the Canada Transportation Act (Act) or regulations, or when a regulated entity has not complied with a CTA Order, the following enforcement actions are available:

Issuing a Notice of Violation Setting an Administrative Monetary Penalty

A DEO may issue a Notice of Violation (NOV) setting out the administrative monetary penalty (AMP) that the regulated entity is liable to pay. AMPs are administered based on a progressive scheme of penalties aimed at fostering compliance.

Issuing a Notice of Violation that Contains a Warning for Contraventions of Accessibility Provisions

A DEO who believes that a regulated entity has committed a violation of an obligation made for the purpose of identifying or removing barriers or preventing new barriers in the federal transportation network to the mobility of persons with disabilities may issue an NOV that contains a Warning.

This is a new power under the Act, as amended by the Accessible Canada Act.

Severity Levels

The CTA has assigned a severity level for each of the legislative or regulatory provisions that are subject to an AMP, from Level A to Level D. A violation of a Level A provision is considered to be strictly administrative in nature, progressing to Level D, the most serious, as described in the following table:

Under the CTA's penalty scheme, progressively higher penalties for repeat violations are imposed. Each subsequent violation of the same provision of the Act or Regulations within a four-year period by the same entity will result in progressively higher penalty amounts, up to the maximum amount specified for each provision.

Administrative Monetary Penalties (various maximum penalty amounts up to $25,000)

Applicable to certain provisions of the:

• Canada Transportation Act
• Air Transportation Regulations
• Air Passenger Protection Regulations
• Railway Third Party Liability Insurance Coverage Regulations
• Railway Interswitching Regulations

Corporations

Administrative Monetary Penalties (maximum penalty amount of $250,000)

Applicable to certain provisions of the:

• Air Transportation Regulations (Part VII)
• Personnel Training for the Assistance of Persons with Disabilities Regulations
• Accessible Transportation for Persons with Disabilities Regulations

Once an NOV that sets out an AMP has been issued for an accessibility related matter, the Agency may, upon request by a regulated entity, enter into a compliance agreement subject to terms that the Agency considers appropriate for the purpose of ensuring the entity's compliance with its legal obligations. The terms may include a provision for the deposit of reasonable security as guarantee that the person will comply with the agreement and may provide for the reduction, in whole or in part, of the amount of the penalty.

Under the Canada Transportation Act, a DEO has the authority to issue an AMP when the DEO believes that a violation has been committed. This policy constitutes a guideline for the DEO who has the ultimate discretion in determining the amount of the AMP.

Note that violations of certain legislative or regulatory provisions are handled on a case-by-case basis, and could result in the issuance of higher AMPs for first and subsequent violations than described above.

1. DEO receives information about potential non-compliance Information may be received from:

• external sources (e.g. a third party, such as a competitor or a client);
• internal sources (e.g. licencing)
• another government department or agency; or
• the DEO's own observations.

2. DEO analyses information and completes preliminary investigation form, steps include: (1-3 days depending on number of instances to be verified)

• Identifying elements of the file
• Determining if violation is a Designated Provision (AMP)
• Reviewing internal databases
• Reviewing open-source information
• Verifying statute of limitation has not expired (1 year from date of alleged violation)

3. Preliminary Investigation form is sent to Enforcement Manager for approval.

4. Targeted Investigation is opened in CMS

5. Investigation Phase

• Gathering of Evidence: ( minimum 2 weeks but can take much longer depending on number of possible violations and amount/type of supporting evidence required)
  • DEO sends formal requests for information from suspected violator, other Government departments, witnesses, etc.
• Analysing of Evidence: ( depending on the file, anywhere from few days to several of weeks)
  • DEO must review received information to ascertain whether it can establish on a balance of probabilities that a violation occurred.
  • This includes ensuring that information has been obtained that fulfils each element of the violation. (See table 1 for example)
  • This also includes gathering evidence to counter potential defense of due diligence
  • DEO takes into consideration previous case-law/agency decisions precedents. (For example the meaning of "air service" was articulated in Agency Decision No. 390-A-2013)

Table 1: Example of "Elements of the Violation" for Section 57 CTA

6. DEO prepares Investigation Package and submits to Enforcement Manager for review/approval. Investigation Package includes: (1-3 days)

• Investigation Report
• Appendices
• Calculation of AMP which takes into account:
  • minimum/maximum penalty set out in CTA policy
  • Takes into account aggravating/mitigating factors (+/- 10% per factor)
• Draft NOV

7. Enforcement Manager forwards Investigation Package to Legal Services for review/recommendation. ( depends on legal workload and the complexity of the file)

8. DEO signs NOV and sends to responsible party (overall the minimum time it take to complete an investigation is about a month)

9. Responsible party has 30 days to make payment of request TATC review.

Q. The US DOT has issued millions of dollars in fines to carriers to enforce regulations – why hasn't the CTA?

• The US DOT has issued $7.2 million in civil penalties related to Refunds during the pandemic – this represents almost 75% of all civil penalties issued during this time. The CTA did not obtain the authority to enforce refunds until last September, 2022.
• It is also important to note that the U.S. civil penalty and Canadian administrative monetary penalty (AMP) schemes are fundamentally different:
  • Civil penalties are issued in the US in large part so that passengers are provided remedies (compensation, refunds) by airlines, as unlike the CTA in Canada, the DOT does not adjudicate individual passenger complaints. Typically, the DOT will only undertake an enforcement action if they have evidence of systematic violations, or a single or a few egregious violations.
  • The DOT works with the airline to negotiate a consent order to deter future misconduct, key of which is ensuring passengers are provided remedies. The CTA does not negotiate AMPs with airlines.
  • In the US, civil penalties, or a portion thereof, negotiated with the airline can be suspended and would only become due if the airline commits similar violations within a set time. The CTA does not have this authority.
  • In the US, the maximum penalty is $37,377 per violation - and for continuing violations, each day a violation continues is a separate violation for penalty purposes. For the CTA, for passenger protection violations, the maximum penalty amount is $25,000 and we do not have the authority to fine for continuing the same violation.

Background Context on DOT's Penalty Agreement with Air Canada Respecting Refunds

In November 21, 2022, the DOT and Air Canada came to a settlement in a case which provides an example of the application of the DOT's civil penalty scheme. In that case Air Canada initially would not agree to a consent order and the DOT had to escalate the matter and proposed a $25,550,000 fine against Air Canada, and this was subsequently reduced in a negotiated settlement with Air Canada to $4,500,000; and then reduced to a payment of $2,000,000, in part due to a credit Air Canada received for refunds that it provided to passengers who were not entitled to refunds under U.S. law (i.e. passengers with non-refundable tickets who chose not to travel).

Outline of Case:

In response to the nearly 6000 complaints received by the US DOT's Office of Aviation Consumer Protection (OACP) about Air Canada respecting refunds, the OACP attorney alleged that there are 5,110 violations against the airline. Air Canada had asserted that they were not required to provide refunds in cases where flights are canceled due to the COVID-19 pandemic. The OACP had notified the carrier multiple times throughout 2020 and 2021 that the carrier's stance on the matter "lacks merit". Air Canada refused to change its policy until April 13, 2021, and would not come to terms on a consent order (i.e. a negotiated settlement) with the OACP. The OACP asserted that without a cease and desist order the airline may revert it's policies back to not providing refunds. Given the lack of an enforcement consent order, the OACP had filed on June 15, 2021 a complaint with an administrative law judge to hear the matter.

In this case the OACP attorney commenced enforcement actions against Air Canada. The OACP was seeking a cease and desist order with respect to not providing refunds and a civil penalty of $25,500,000. In respect to the amount it is noted the following was stated by the OACP attorney in the enforcement complaint:

• For purposes of this Complaint, and in order to provide adequate notice of its exposure to potential civil penalties at this early stage, OACP conservatively estimates that Air Canada has committed a minimum of 5,110 violations of section 41712. These passengers waited anywhere from 5 months to 13 months to receive refunds.
• Because 49 U.S.C. 46301 and 14 CFR Part 383 authorize a maximum civil penalty of $34,184 for each failure to provide a refund in violation of section 41712 between July 31, 2019, and January 1, 2021, OACP estimates Air Canada’s potential exposure to civil penalties is at least $174,680,240 without taking into account that each day is a continuing violation. (5,110 x $34,184 = $174,680,240).
• OACP seeks a civil penalty amount that considers consumer harm, the scale of the violations, Air Canada’s knowledge and intent, and deterrent effect. In recognition of all of the circumstances, OACP views an appropriate civil penalty for each failure to provide a prompt refund in violation of 49 U.S.C. 41712 and 14 CFR 259.5, to be $5,000 per violation, which OACP views as high enough to have a deterrent effect. Using this formula, OACP is seeking a civil penalty of $25,550,000 (based on $5,000 times 5,110 violations).

On November 22, 2021, the OACP and Air Canada filed a Joint Motion for Approval of Proposed Settlement Agreement, which included the parties’ signed Settlement Agreement as an attachment which had the following statement:

• Air Canada agrees to the terms of the proposed Settlement Agreement to avoid protracted litigation, as it focuses together with all stakeholders on rebuilding itself and doing its part to support the recovery of the airline industry. Accordingly, this agreement is being entered into for settlement purposes only and does not constitute any admission whatsoever by Air Canada of any violation of any statute, law, or regulation including as alleged, or the truth of any facts alleged during this proceeding (which are expressly denied).

The Settlement Agreement would dispose of all pending issues in this case. Pursuant to 14 C.F.R. § 302.417(a), the parties “may agree to settle all or some of the issues in an enforcement proceeding at any time before a final decision is issued.” Further, “the Administrative Law Judge shall approve the proposed settlement, as submitted, if it appears to be in the public interest.”

Order Approving Settlement Agreement, U.S. Department of Transportation Office of Hearings Washington, DC

As part of the settlement, Air Canada had to pay or be credited the agreed $4,500,000 in compromise of all civil penalties that might have been assessed for violations alleged by the Department. Of this amount,

1. $1,000,000 shall be due and payable within 30 days of the service date of the order approving this Settlement Agreement;
2. $1,000,000 shall be due and payable within 12 months of the service date of the order approving this Settlement Agreement; and
3. $2,500,000 shall be credited to Air Canada upon the service date of the order approving this agreement in consideration of refunds that it provided to passengers with non-refundable tickets for flights to or from the U.S. who chose not to travel and were not entitled to refunds under U.S. law so long as Air Canada was not reimbursed for these funds by the Government of Canada

US Department of Transportation's Compliance Enforcement Approach

Comparison of US and Canadian Air Passenger Protection Legislation and Regulations

Within the US legislative and regulatory regime, carriers are required to address similar issues found within the APPR and ATR including:

• minimum standards and compensation for denied boarding;
• contingency plans for lengthy tarmac delays;
• customer service plans that address minimum standards for issues such as refunds (including cancellations outside the carrier's control) and communicating delays, cancellations and diversions;
• domestic baggage liability (carrier must have a max liability of $3,800 USD per passenger or higher);
• advertising the total price that a consumer must pay to purchase a ticket.
• tariff and the terms in the contracts of carriage.
• minimum standards for the carriage of musical instruments

The US does not have comprehensive rules on rerouting, minimum standards of treatment, compensation for inconvenience for flight delays and cancellations, or comprehensive rules on the seating of children (they have issued "best practices" guidelines respecting seating of children). See: Code of Federal Regulations at Title 14/ Chapter II / Subchapter A.

With respect to Refunds, during the pandemic, the US DOT issued enforcement notices (April 3, 2020 and May 12, 2020) indicating that refund obligations for delays and cancellations "…[do] not cease when the flight disruptions are outside of the carrier’s control." In contrast, the APPR was only recently amended to include refunds for flight disruptions outside carrier's control.

The DOT is currently working on new consumer protection rules for air passengers.

Comparison of Roles: US DOT and CTA

The US DOT's Office of Aviation Consumer Protection (OACP) has responsibilities similar to the CTA. OACP's compliance and enforcement activities include addressing unfair and deceptive practices, unfair competition by carriers and travel agents, deceptive airline advertising, and violations of rules concerning denied boarding compensation, ticket refunds, baggage liability requirements.

Enforcement Action Under OACP

When OACP has evidence of systematic violations, or a single or a few egregious violations, it will take enforcement action. It will first attempt to negotiate with the regulated entity and establish a Consent Order making sure consumers are made whole and assessing a civil penalty that is high enough to deter that entity and others from similar violations. If the regulated entity and OACP are unable to reach agreement on the terms of a consent Order, OACP will seek resolution of the matter by filing a formal complaint with the Department’s Office of Hearings for a decision by an Administrative Law Judge (ALJ).

Consent Orders^{Footnote 1 Footnote 2}

OACP generally takes enforcement action when it sees a pattern or practice of violations—for example, when a company has a problematic policy, multiple consumers file complaints on similar issues, or an incident affects many consumers all at once—or if a single or a few particularly serious violations occur. If enforcement action is warranted, OACP primarily resolves these cases by negotiating with an alleged violator and reaching a settlement agreement in the form of a Consent Order.

The Consent Order is an order directing the alleged violator to cease and desist from the problematic practice. In many cases, the consent order will assess an administrative civil penalty which is remedial in nature and is intended to bring about compliance and to deter similar violations by the same violator or other entities. Consent Orders also help OACP to ensure that consumers’ needs are addressed promptly. For example, if appropriate and to ensure future compliance, OACP may agree to settlements that include a suspended civil penalty amount, which would only become due if the regulated entity commits similar violations within a set time of the order, and/or a credit for costs expended by the violator to do things that benefit consumers beyond what is required by the law. OACP has often permitted up to half the assessed civil penalty to be suspended in tarmac delay cases, for example, to further encourage carriers to prevent future tarmac delays.

OACP has permitted carriers to offset a portion of expenditures on systems that reduced wait times for passengers to obtain wheelchair assistance, or reduced the length of tarmac delays, to time periods below legal time limits. All settlements are made public through OACP’s website. If OACP and a regulated entity cannot reach a satisfactory resolution of an enforcement matter using the consent Order process, then OACP may choose to pursue such violations through the initiation of a formal enforcement proceeding before an ALJ as described below.

In comparison, when the Agency has dealt with numerous complaints on a similar issue, the Agency has initiated inquiries such as the Air Transat Inquiry 2017, Sunwing Inquiry 2018 and Inquiry into complaints regarding reasons for flight delays or cancellations 2020. DEOs utilized the findings of the Air Transat and Sunwing inquiries in their subsequent investigations and issued AMPs for $295,000 and $419,000, respectively.

Enforcement Proceedings in Front of the Department’s Office of Hearings

These enforcement actions are begun by OACP filing a formal complaint with the Department’s Office of Hearings, which will assign the matter to an ALJ for adjudication using trial-type proceedings. These enforcement actions likely would seek substantial civil penalties and include cease and desist provisions as well as other remedial relief deemed appropriate by OACP.

What is the Role of an Administrative Law Judge in Comparison to CTA?

Administrative law judges, who work for the DOT's Office of Hearings, are similar to CTA members, the primary process difference is the parties to the proceedings. At the CTA in an adjudication, both the passenger and the carrier provide the pleadings while CTA staff facilitate the process and Agency members render a decision. In the OACP process they file a complaint to the administrative law judge and the parties to these proceedings are the carrier and the OACP. The OACP acts in the public interest, utilizing the complaints from passengers as their evidence.

Warning Letters

If enforcement action through an order or an administrative proceeding before an ALJ is not warranted, for example, if the violating entity took sufficient corrective action prior to OACP learning about the violation, OACP may exercise its discretion and send a warning letter to the violating entity. The letter places the violator on notice that OACP is aware of the violation and may pursue enforcement action if similar violations occur in the future.

Civil Penalty or AMP Amounts

Like the CTA, the OACP considers several factors in determining the penalty amounts. They may seek civil penalties in the amount of $37,377 per violation for all entities, other than small business or individuals, to which a general penalty amount of $1,644 per violation applies (higher penalties are issued for anti-discrimination, essential air services and unfair and deceptive practices provisions.). In comparison, when determining the amount of an AMP, CTA DEOs also consider several factors per the policy and assigned severity levels of provisions.

US DOT Messaging Respecting Compliance Enforcement

On January 3, 2023, the United States Department of Transportation (US DOT) published a "Notice Regarding Investigatory And Enforcement Policies And Procedures". This notice provides insight into the enforcement actions the US DOT's Office of Aviation Consumer Protection (OACP) can undertake and its current approach and messaging to reaffirm its commitment to 'vigorously' enforce the law and protect consumers.

(For information on OACP's complaint process see Appendix A)

Appendix A

OACP's Complaint Process

How does the US DOT handle air passenger complaints?

The OACP is the body within the US DOT that receives air travel complaints. The OACP's dispute resolution process differs from the CTA in that it facilitates complaints and follows up with airlines to try to bring them into compliance willingly. Unlike the CTA, the OACP does not mediate or adjudicate complaints.

The OACP recommends that the first course of action should be for a passenger to complain to the airline and try to conclude the issue with them. If their issue is not rectified, the passenger may complain to the OACP. At that point the OACP Analyst will forward the complaint to the airline, review their response and analyze the case to determine if there is a violation. With the assistance of an attorney, the OACP Analyst will then prepare a written assessment, summarizing each party’s position and offering an assessment. This assessment may trigger an airline response.

If the carrier does not act on the complaint or on the OACP assessment, the OACP Analyst will continue to contact the carrier in an effort to resolve the complaint. Typically, for individual complaints, the airline will comply with the OACP assessment, if not, the passenger can pursue the matter through small claims court. The matter could be escalated to an OACP attorney who is responsible for commencing enforcement action. Typically this would be the case if it is related to an egregious violation(s). Complaints also be escalated for enforcement action if they relate to systemic issues, or issues that affect many passengers (e.g. tarmac delays).

In addition to its complaints facilitation and enforcement actions, the OACP also has a "name and shame" function in that they produce monthly Air Travel Consumer Reports which list various airline details including the number and type of complaints as well as various statistics about the airline such as flight delays, cancellations, denied boarding, mishandled baggage and so on.

Appendix B

(from Enforcement Order 2021-2-8, served on February 18, 2021 on JetBlue Airways)

1. We order JetBlue Airways Corporation and its successors and assigns to cease and desist from further violations of 14 CFR 259.4 and 49 U.S.C. §§ 41712 and 42301;
2. We assess JetBlue Airways Corporation $60,000 in compromise of civil penalties that might otherwise be assessed for the violations found in ordering paragraphs 2 and 3, above. Of this amount,
   1. $22,500 shall be due and payable as follows:
      1. $11,250 shall be due and payable within 120 days of the service date of this order;
      2. $11,250 shall be due and payable within 180 days of the service date of this order;
   2. $15,000 shall be credited to JetBlue Airways Corporation for travel vouchers provided to passengers on board flight 746 and passengers who had to wait additional time for wheelchair assistance to deplane flight 326;
   3. The remaining $22,500 shall become due and payable if, within one year of the service date of this order, JetBlue Airways Corporation, violates this order’s cease and desist or payment provisions, in which case the entire unpaid amount shall become due and payable immediately and JetBlue Airways Corporation may be subject to additional enforcement action for failure to comply with this order;

Are air passengers receiving refunds for cancelled and delayed flights?

• The pandemic highlighted a gap in the Air Passenger Protection regulatory framework:
  • The absence of a requirement for airlines to refund tickets when flights are cancelled, or where there is a lengthy delay, for reasons outside airline control and it is not possible for the airline to ensure that the passenger's itinerary is completed within a reasonable time.
• This gap was recently closed through an amendment to the regulations:
  • Since September 8, 2022, airlines must offer passengers a rebooking or a refund, even for flight disruptions outside airline control, if they are not able to rebook the passenger within 48 hours.

RESPONSIVE: 48-hour rebooking window

• In the case of flight disruptions outside carrier control only, airlines are provided with the opportunity to rebook a passenger within 48 hours of the original departure time, before having to offer a refund.
• The 48-hour rebooking window provides a balance between the needs of airlines and passengers. It recognizes that airlines may reasonably need more time to recover their schedules after a disruption that was outside their control. It also takes into account the unique realities and concerns of Canadian airlines, particularly those that work in the northern and remote locations where there are infrequent flights and where weather-related disruptions can be lengthier.
• In the case of events within carrier control a passenger would be entitled to a refund instead of rebooking, if the arrangements offered do not meet their travel needs, or there is no longer any purpose to the travel, because of the disruption.

RESPONSIVE: Is it not true that carriers have been required to offer refunds under Canadian law since 2004?

• Prior to 2019, the Agency had issued a number of decisions regarding refunds in specific cases adjudicated by the Agency, but there was no regulation or legislation which required airlines to provide refunds prior to the Air Passenger Protection Regulations.
• Following the amendment of the Canada Transportation Act in 2018 to allow for the making of the Air Passenger Protection Regulations, these earlier decisions helped to shape the regulatory proposals that were subsequently the subject of wide consultations, and which led ultimately to a new regulatory framework for the consumer protection of air passengers.
• This new regulatory framework provided that rebooking or refunds had to offered to passengers who experienced flight disruptions that were within airline control or within airline control, but required for safety.
• On December 21, 2020, the Minister of Transport issued a direction to the Agency, directing the CTA to amend the regulations to provide for a refund in the case of flight disruptions outside carrier control. The subsequent amendment came into force on September 8, 2022.

RESPONSIVE: Vouchers

• During the pandemic, before this regulatory amendment came into force, there was a concern that some passengers might not receive any form of repayment for the mass flight cancellations that were taking place.
• In that context, the Agency issued a statement on vouchers that was meant to ensure that this wouldn't happen.
• The statement did not affect the rights of passengers who believed that they were entitled to a refund under the tariff of a particular air carrier.
• The Agency was very clear that it would continue to respond to disputes on a case by case basis on their merits and it has done just that.

RESPONSIVE: Independence

• The Agency has recently published on our website a statement regarding our independence and impartiality.
• To perform some of its regulatory functions, the Agency does engage with government officials, with the industries it regulates, and with consumer and disability rights organizations. That engagement is required by law or government policy when the Agency develops certain regulatory instruments.
• In other situations, engagement allows the Agency to, for example, further its expertise to understand the transportation trends and issues it needs to take into account. Engagement allows the Agency to remain current and relevant, and to competently advance its mandate.