Canada: Wage-Fixing And No-Poaching Agreements

The federal government has introduced legislation aimed at maintaining and encouraging competition among employers for employees. This new legislation prohibits agreements between employers to fix wages or other terms and conditions of employment, and to restrict job mobility.

Amendments to the Competition Act

On June 23, 2023, section 45(1.1) of the Competition Act came into force. Section 45(1.1) addresses wage fixing and no-poaching agreements among all employers, whether they are provincially or federally regulated. Section 45(1.1) provides as follows:

Affiliation is defined in section 2(d) as follows:

Impact on Employment Law

Under s.45(1.1), it will be an offence for an employer to agree with an unaffiliated employer not to solicit or hire each other's employees. However, a one-way agreement (i.e. employer A agrees not to hire employer B's employees, but employer B is permitted to hire employer A's employees) will not be an offence.

Under S.45(1.1.) it will also be an offence for an employer to fix, maintain, decrease or control wages and/or terms and conditions of employment with an unaffiliated employer. This is true even if arrangements are unofficial or informal.

"Terms and conditions of employment" includes more than just wages. For example, it would include items such as benefits, vacation entitlements, and company policies that would be seen to affect the terms and conditions of employment.

Affiliated companies are not subject to these prohibitions. Affiliation is defined with reference to control. When two employers are controlled by the same parent company or individual, they are said to be affiliated. For example, wage-fixing or no-poaching agreements between two or more corporate entities that are controlled by the same parent company do not violate the provision.

Informal agreements amongst employers in an industry to provide reciprocal information about wages, benefits packages, and other employment information will be in violation of section 45(1.1) if the arrangement is for the purposes of aligning wages or terms and conditions of employment. The penalties for wage fixing and no-poaching agreements are imprisonment for a term up to 14 years and/or a fine to be set at the discretion of the court.

Key Principles

1. The provision will apply to new agreements entered into by employers on or after June 23, 2023, as well as to conduct that reaffirms or implements older agreements.
2. Section 45(1.1) is directed at "naked restraints" on competition, that is, restraints on wages or job mobility that are not implemented in furtherance of a legitimate collaboration, strategic alliance or joint venture.
3. Such agreements need not be explicit to violate section 45(1.1); courts can infer the existence of such agreements from circumstantial evidence suggesting a meeting of the minds between the parties. Even informal discussions among managers or HR to share information may raise competition risk and trigger section 45(1.1).
4. The Competition Bureau (the "Bureau"), which is responsible for administering and enforcing the Competition Act, recognizes that a company may be aware of the likely response of its competitors. The Bureau does not consider this awareness (called "conscious parallelism") to be in violation of section 45(1.1). However, conscious parallelism coupled with facilitating practices, such as sharing sensitive employment information or taking steps to monitor each other's employment practices, may be enough to violate section 45(1.1.).

Exceptions and Defences

Subsection 45(4) provides a defence for ancillary restraints. The ancillary restraints defence is available when certain desirable business transactions or collaborations require restraints on competition to make them efficient, or even possible. Specifically, this defence is available when:

1. the restraint is ancillary to, or flows from, a broader or separate agreement that includes the same parties;
2. the restraint is directly related to and reasonably necessary for achieving the objective of the broader or separate agreement referred to above; and
3. the broader or separate agreement referred to above, when considered without the restraint, does not violate subsection 45(1.1).

To be eligible for the defence in subsection 45(4), the restraint in question must be ancillary to a broader or separate agreement that includes the same parties. The Bureau recognizes the significance that non-solicitation clauses can play in many agreements to purchase a business.

Similarly, wage-fixing or no-poaching clauses that are ancillary to merger transactions, joint ventures or strategic alliances fall under this defence. An exception would be where those clauses are clearly broader than necessary in terms of covered employees, territories or duration, or where the merger, joint venture or strategic alliance is a sham.

Additionally, an agreement reached between employers in the course of collective bargaining is not subject to the Competition Act based on section 4, which states as follows:

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.