On June 23, 2023, amendments to the Canadian Competition Act (Act) took effect which now make it a per se criminal offence for unaffiliated employers to agree, conspire or arrange to:
- “Fix, maintain, decrease or control salaries, wages or terms and conditions of employment” (wage-fixing agreements); or
- “Not solicit or hire each other’s employees” (no-poach/non-solicit agreements).
For the purposes of the new offences, employers are “affiliated” with one another if they are under common control, such as parent, subsidiary and sister companies.
The penalties associated with a breach of these offences are significant and include imprisonment of up to 14 years and/or unlimited fines at the discretion of the court. In addition, the Act provides a statutory cause of action to any person who has suffered loss or damage arising from a breach of these provisions, creating significant employer exposure to class actions.
By enacting these new offences, Canada joins other jurisdictions, most notably the United States, in placing new emphasis on protecting employees from allegedly anticompetitive conduct in labour markets. According to the Competition Bureau (Bureau), maintaining and encouraging competition among employers will lead to higher wages and salaries, as well as better benefits and employment opportunities for employees.
To assist Canadian employers with compliance, the Bureau has issued Enforcement Guidelines that, while non-binding, set out the Bureau’s position regarding the enforcement of these offences.
Key Aspects of the New Wage-Fixing and No-Poach Provisions
New Prohibited Agreements Need Not Be with Competitors
The wage-fixing and no-poach offences apply regardless of whether employers engaging in the prohibited conduct compete with one another, whether in the provision of goods and services or as purchasers of labour. As a result, the scope for liability with respect to these provisions is much broader than for the existing cartel provisions in the Act. However, the Bureau notes in its Enforcement Guidelines that it expects to “prioritize its enforcement on wage-fixing and no-poaching agreements between employers that would otherwise compete in the purchase of labour”.
The New Provisions Also Apply to Existing Agreements?
The new offences clearly apply to agreements entered into on or after June 23, 2023. In addition, the Bureau takes the position that any reaffirmation or implementation of an existing agreement after June 23 by more than one party will also be caught by the new provisions if it is sufficient to constitute a continuing agreement or arrangement between such parties.
Prohibited Wage-Fixing Agreements Extend to “Terms or Conditions of Employment”
The new offences prohibit agreements or arrangements between unaffiliated employers relating not only to wages and salaries but also to “terms or conditions of employment”. According to the Enforcement Guidelines, the Bureau takes the position that “other terms or conditions of employment” should be broadly interpreted to include “job descriptions, allowances such as per diem and mileage reimbursements, non-monetary compensation, working hours, location and non-compete clauses, or other directives that may restrict an individual’s job opportunities”.
The New Offences only Apply to Reciprocal Non-Solicit Agreements
According to the Bureau’s Enforcement Guidelines, the no-poach or non-solicit offence is limited to agreements to “not solicit or hire each other’s employees” (emphasis added), meaning that only reciprocal agreements by at least two parties will be prohibited. As a result, when only one party agrees not to solicit the other’s employees (as is often the case as part of a purchase and sale transaction) there will generally not be an offence under the no-poach provision.
Exchanges of Employment Information May Create New Risks
As with the general criminal conspiracy offence, the new offences do not expressly prohibit the exchange of information regarding salaries, wages and other terms and conditions of employment. However, the Bureau’s view is that information exchanges can serve as circumstantial evidence of the existence of unlawful agreements. It is therefore important for employers to now also exercise caution when sharing potentially sensitive employment information e.g., in the context of human resources (HR) benchmarking exercises.
The New Offences may Apply to Franchise Agreements
The Bureau acknowledges that employment-related restraints may have a legitimate role in franchise agreements. At the same time, the Bureau also highlights that it may investigate situations where these restraints appear to be broader than necessary or where concerted steps are taken to enforce otherwise non-reciprocal restraints. For example, the Bureau’s Enforcement Guidelines state that while a franchisee’s mere awareness of no-poaching restraints in parallel standard franchise agreements ordinarily will not raise concerns, the Bureau could regard steps taken by two or more franchisees to enforce a no-poaching restraint as evidence of a common consensus and potentially an illegal agreement.
The New Offences may also Apply to Mergers, Joint Ventures and Strategic Alliances
On the face of it, the new offences could capture non-solicitation arrangements and other employee-related provisions in common commercial agreements such as joint ventures, mergers, and purchases and sales of businesses that involve some restrictions on hiring or changes to salaries, wages and/or employment terms and conditions.
That said, the Enforcement Guidelines state that the Bureau will not “generally assess wage-fixing or no-poaching clauses that are ancillary to merger transactions, joint ventures or strategic alliances under the criminal provisions”, unless those clauses are clearly “broader than necessary in terms of duration or affected employees or where the business agreement or arrangement is a sham”. Even if not caught by the new offences, however, the Bureau could still pursue such arrangements under the reviewable matters provisions of the Act (including the civil competitor agreements provision), although these require evidence of anti-competitive harm rather than being per se violations.
Ancillary Restraints Defence Is Available for the New Offences
Employers contemplating potential restraints may also be able to rely on the Act’s ancillary restraints defence (ARD), which is available where the restraint is both ancillary to a broader lawful agreement between the same parties and is directly related and reasonably necessary to achieve the objective of that broader agreement. Application of the ARD will involve considerations such as
- The duration of the ancillary restraint;
- The subject matter of the restraint;
- Its geographic scope;
- Whether the parties could have achieved an equivalent/comparable arrangement through practical, significantly less restrictive means;
- Whether in the absence of the restraint, the broader agreement could be implemented only under considerably more uncertain conditions at substantially higher costs or over a significantly longer period; and
- The reasons for the adoption of the restraint.
The Enforcement Guidelines provide helpful, although limited, specific examples of when the ARD may be available, including where a staffing/recruitment contract contains a reciprocal non-solicitation clause that remains in force only for the duration of the contract. However, the Enforcement Guidelines indicate that the application of the ARD will need to be assessed on a case-by-case basis to determine whether the restraint and its terms are reasonably necessary.
Practical Tips and Considerations
Given the potentially significant consequences of contravening the new wage-fixing and no-poaching offences, businesses operating in Canada and their HR and legal professionals should review their practices and take steps to mitigate the risks of non-compliance. These steps may include:
Reviewing HR practices. Conduct an HR practices audit to help identify any red-flag conduct, including whether the business is involved in wage-fixing or no-poaching agreements with other parties or is engaging in discussions or exchanges of information on these topics – for example, through industry organizations that may share employment-related information as part of benchmarking exercises. Such an audit could include a legal review of existing agreements with unaffiliated employers to assess risk and to restructure where needed.
Updating internal compliance and training. Ensure that internal competition law compliance materials and training include a discussion of potential HR risks arising from the new offences and that HR personnel as well as senior executives who participate in hiring or determining terms of employment are included in such compliance training.
Exercising caution with employee-related and reciprocal non-solicit restraints. Carefully evaluate the use of reciprocal non-solicit clauses or other employee-related provisions in broader commercial agreements that may go beyond what would be considered reasonable or typical (in duration, scope and subject matter). It may also be helpful to document the rationale for any such non-solicits, non-competes or other employee-related restraints, and be prepared to demonstrate that they are reasonably necessary to give effect to the broader lawful transaction between the parties.
________________________
To make sure you do not miss out on regular updates from the Kluwer Competition Law Blog, please subscribe here.
Kluwer Competition Law
The 2022 Future Ready Lawyer survey showed that 79% of lawyers are coping with increased volume & complexity of information. Kluwer Competition Law enables you to make more informed decisions, more quickly from every preferred location. Are you, as a competition lawyer, ready for the future?
Learn how Kluwer Competition Law can support you.
