On May 30, 2023, the Competition Bureau (the "Bureau") released finalized guidance ("Final Guidelines") on the application of the new section 45(1.1) criminal offences in the Competition Act ("Act"). They revise the draft guidance ("Draft Guidelines") that we detailed earlier this year.
The new offences were adopted June 23, 2022 and will enter into force June 23, 2023. Once in force, they will criminalize agreements between unaffiliated employers to: (1) fix salaries, wages or other terms and conditions of employment; or (2) refrain from soliciting or hiring each other's employees. The Final Guidelines provide some additional clarity compared to the Draft Guidelines, though uncertainty remains.
Our prior commentary provides a thorough description of this important new criminal regime for certain types of employment agreements. The key provisions are sections 45(1.1) and 45(4). Section 45(1.1) criminalizes two categories of agreements between unaffiliated employers:
- Agreements to fix, maintain, decease or control salaries, wages, or terms and conditions of employment (subsection 45(1.1)(a)); and
- Agreements not to solicit or hire each other's employees (subsection 45(1.1)(b)).
The Bureau notes that the use of the words "each other's" employees in 45(1.1)(b) entails that only a reciprocal no-poach clauses will be captured under 45(1.1)(b). In other words, this new offence does not apply to "one-way" no-poach clauses.
The primary defence to section 45(1.1) is the ancillary restraints defence (section 45(4)), which allows the accused to avoid criminal liability where it can be established, on a balance of probabilities, that:
- the impugned agreement (i.e., a wage-fixing or no-poach clause) is ancillary to a broader or separate legitimate agreement between the parties; and
- the wage-fixing or no-poach provision is related to and reasonably necessary to give effect to the broader legitimate agreement.
The Final Guidelines, which come after Bureau consultation with stakeholders, build upon the Draft Guidelines in five key ways:
- Greater Detail Concerning a Continuous Course of Conduct. The Final Guidelines provide greater insight into the Bureau's position that, while subsection 45(1.1) applies to agreements entered into between employers on or after June 23, 2023, it will also capture conduct that "reaffirms or implements" agreements made before that date. Helpfully, the Bureau emphasizes that reaffirming such an agreement would require fresh conduct from at least two parties to "establish the requisite consensus or 'meeting of the minds'". Although the Bureau invites employers to update their pre-existing agreements, this is a welcome addition which, in our view, reassures firms that they need not renegotiate all of their prior legitimate agreements that include reciprocal non-solicitation clauses to comply with the new regime (although the actual conduct under such agreements will now need to comply with the new employment agreements offence).
- Expanded Description of an "Employee". The Bureau has added additional analysis which heavily suggests that independent contractors may fall outside of the scope of section 45(1.1). One hypothetical scenario (Example 3) involves an agency that temporarily places specialized workers at another firm pursuant to a services agreement. In assessing whether a non-solicitation clause between the agency and the host-firm concerns "employees", the Bureau notes that it will "examine the relationship between the workers and employers to determine whether an employer-employee relationship exists". The Bureau explains that this exercise would involve consideration of applicable provincial and federal legislation. Nevertheless, the Bureau concludes with a remark that suggests independent contractors may not be employees for the purposes of 45(1.1), observing that "if an employer treats an independent contractor as an employee, the business contract between them could transform into an employment relationship" [Emphasis added].
- Expanded Comfort Beyond Merger Agreements. The Draft Guidelines explained that, as non-solicitation clauses commonly play an important role in agreements to purchase a business, as a matter of enforcement discretion, the Bureau "will generally not assess wage-fixing or no-poaching clauses that are ancillary to merger transactions, joint ventures or strategic alliances under the criminal track". In the Final Guidelines, the Bureau expands this further, recognizing "the role these types of restraints can play in certain business arrangements, for example in franchise agreements and certain service provider-client relationships, such as staffing or IT service contracts" [Emphasis added]. That said, the Bureau reserves the right to commence a criminal investigation "where those clauses are clearly broader than necessary in terms of duration or affected employees, or where the business agreement or arrangement is a sham". Unfortunately, the Final Guidelines do not provide guidance as to appropriate duration of a reciprocal no-poach clause or the employees to which it applies. Where the Bureau considers that the scope of a reciprocal no-poach agreement is reasonable, it retains the ability to review the agreement under the civil agreements provision of the Competition Act (s. 90.1).
- Greater Detail for Franchise Systems. To provide comfort to franchisees and franchisors, the Bureau has reworked Example 4. The example now makes clear that, absent an explicit agreement between the franchisees, "mere awareness of parallel standard franchise agreements, which include no-poaching restraints, ordinarily will not raise concerns under subsection 45(1.1)". It also details how an agreement between franchisees to recoup training costs relating to "poached" employees would not generally be considered problematic under subsection 45(1.1) "where the compensation is reasonably related to the costs incurred for training and does not disadvantage employees' opportunities relative to external candidates".
- Bureau Enforcement Priorities Will Consider the Labour Market. Section 45(1.1) does not explicitly require employers to participate in the same labour market for their agreements to attract criminal liability. However, the Bureau emphasizes that, when it comes to enforcing the Act, it will prioritize agreements that concern employers in the same labour market.
While the Final Guidelines remedy some uncertainty left by the earlier Draft Guidelines, important questions remain. For instance, despite the fact that the ancillary restraints defence is anticipated to play an important role in justifying non-solicitation agreements, the Bureau provides no discussion of a reciprocal non-solicitation clause with a duration extending beyond the end of the broader legitimate contractual agreement. In Example 3, which deals with a reciprocal no-poaching clause, the clause expires contemporaneously with the broader agreement. Electing to assume a conservative posture, the Bureau instead uses this example to emphasize that "it could take enforcement action when a restraint is clearly broader than necessary".
Further, in contrast to guidance from the American antitrust agencies, the Bureau has not included specific guidelines with respect to human resources benchmarking and exchange of information. American guidance explicitly addresses this commonplace practice.1 The Bureau rather invites employers to refer to its general guidance on information exchange included in its Competitor Collaboration Guidelines and guidance on Trade Associations and the Competition Act.
As we stressed in our prior, more detailed bulletin the new section 45(1.1) employer offences represent, in our view, the most stringent wage-fixing and no-poach antitrust enforcement regime in the world. The potential liabilities under these offences are substantial — prison sentences of up to 14 years for involved individuals, significant corporate fines with no statutory limit (but instead "in the discretion of the court"), civil damages claims (including by way of class actions), reputational harm, and potential debarment of companies with public. It is important to note that any individual or company that becomes aware of agreements or conduct contrary to the new criminal offence can benefit, in exchange of full cooperation, from the Bureau's Immunity and Leniency Programs. This tool could enable the Bureau to detect problematic "naked restraints". The Bureau is in the process of updating its immunity program to reflect the addition of the employment agreement offence.
In light of these serious consequences, all Canadian employers would be well-advised to consider the impact of the new provisions on their business, including: evaluating employment-related clauses in their standard commercial arrangements, reviewing their human resources policies (including salary benchmarking exercises), and updating their anti-trust compliance programs.
1. Department of Justice Antitrust Division, Antitrust Guidance For Human Resource Professionals, October 2016, online: https://www.justice.gov/atr/file/903511/download.
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