On June 23, 2023, subsection 45(1.1) of the federal Competition Act comes into force criminalizing wage-fixing and no-poaching agreements (the "Amendment"). Unlike the existing anti-conspiracy provision, the Amendment does not require the parties to be competitors. Any wage-fixing or no-poaching agreements are illegal, even between employers in completely different industries. Despite the expanded reach, the Amendment only applies to agreements entered by employers on or after the Amendment comes into force or conduct that reaffirms or enforces older agreements. Therefore, older agreements with wage-fixing or no-poaching clauses do not necessarily violate the Amendment; they just cannot be enforced.
The Competition Bureau (the "Bureau") released a draft enforcement guideline outlining the approach the Bureau will take in interpreting and enforcing the Amendment (the "Enforcement Guideline"). While the Enforcement Guideline is not legally binding, it provides helpful insights for employers.
1. Wage-Fixing Agreements
The Amendment prohibits agreements that fix, maintain, decrease, or control salaries, wages, or terms and conditions of employment. Terms and conditions of employment are considered to be any terms or conditions that could affect a person's decision to enter into or remain in an employment relationship. This can include job descriptions, allowances such as per diem and mileage reimbursements, non-monetary benefits, working hours, location and non-compete clauses, or other directives that may restrict an individual's job opportunities.
2. No-Poaching Agreements
The Amendment also prohibits agreements between employers to not solicit or hire each other's employees. It prohibits all forms of agreements between employers that limit opportunities for their employees to be hired by each other, such as restricting the communication of information related to job openings, and it prohibits adopting hiring mechanisms, such as point systems, designed to prevent employees from being poached or hired by another party to the agreement.
Importantly, the no-poaching offence requires mutuality. The offence is restricted to instances where two or more employers agree or arrange to not solicit or hire each other's employees. It is not an offence when only one party agrees to not poach another's employees.
Defences / Exemptions
While the Bureau has broad enforcement discretion, there are situations where wage-fixing and no-poaching agreements are defensible and exempted.
1. Affiliated Employers
The Amendment only applies to unaffiliated employers. Wage-fixing or no-poaching agreements between affiliated employers (entities controlled by the same parent company) is not an offence.
2. Agreements Entered into Prior to June 23, 2023
As mentioned above, pre-existing agreements are protected so long as they are not enforced. Meaning employers are not required to amend non-compliant agreements to remove problematic terms or clauses; they just cannot seek to enforce them.
3. Ancillary Restraints Defence
Some wage-fixing and no-poaching agreements will be protected by the ancillary restraints defence, which recognizes that some desirable business transactions or collaborations require restraints on competition to make them efficient, or even possible. Availability of this defence is dependent on:
- The restraint being ancillary or flowing from a broader or separate agreement that includes the same parties;
- The restraint being directly related to and reasonably necessary for achieving the objective of the broader or separate agreement; and
- The broader or separate agreement, when considered without the restraint, does not violate the provision.
Under the Enforcement Guideline, the ancillary restraints defence will commonly be applied to wage-fixing or no-poaching clauses that are integral to merger transactions, joint ventures, or strategic alliances. However, employers must still be cautious and not adopt unnecessarily broad restraints in terms of duration, subject matter, and geographic scope.
Further, franchisor/franchisee agreements are not offered the same protection. Whether the ancillary restraints defence applies between a franchisor and franchisees will be case-specific and depend on the whether the employers can prove that the no-poaching clause is necessary and flows from the broader franchise agreement.
4. Other Defences / Exemptions
Other legal defences or exceptions such as the regulated conduct defence, export agreement defence, and the collective bargaining exemption may also apply. Employers should consult the Bureau's additional Competitor Collaboration Guideline or seek legal advice to determine whether any other defences may apply.
Penalties for non-compliance with Section 45 have also been updated. As of June 23, 2023, offences are punishable by imprisonment for up to 14 years or a fine to be set at the discretion of the court, or both. Notably, the previous monetary cap for fines will be removed and there will be no statutory limit.
Moreover, employers can also face potential civil liability as people who are harmed as a result of illegal wage-fixing and no-poaching agreements have a private right of action, including through class actions.
Other Key Insights from the Enforcement Guideline
- Employer interpreted broadly - An "employer" includes directors, officers, as well as agents or employees, such as human resource professionals. Therefore, individuals who enter into illegal agreements may be subject to prosecution, as well as the individual's employer corporation.
- Focus on employment relationship - The new provision only applies to employees, where an employee-employer relationship exists. Independent contractors are not captured. Determining whether an employee-employer relationship exists will depend on the employment laws of the jurisdiction and circumstances of the relationship.
- Be wary of sharing information - Sharing sensitive employment information or taking steps to monitor each other's employment practices, may be sufficient to prove an agreement was concluded and constitute an offence.
- Bureau has broad enforcement discretion - The Bureau can scrutinize agreements to analyze whether it could have been achieved through significantly less restrictive means. The Bureau can also consider the broader context of labour markets to determine whether an unwritten agreement or tactical arrangement exists.
Although the public consultation period is now over, we have confirmed with the Bureau that the Enforcement Guideline is not yet finalized and may not be until just before the Amendment comes into effect. Therefore, while the Enforcement Guideline could be subject to change, presumably the chance of substantive changes are low.
As it stands, the Bureau will have broad enforcement discretion when it comes to wage-fixing and no-poaching agreements. In light of this and the potential risk of substantial penalties for violations, employers should ensure compliance with the Amendment and implement risk reduction strategies and policies. In particular, it is recommended employers draft more robust employment information sharing policies and review their hiring practices, and any current arrangements with other employers to ensure they comply with the new provision. Existing template agreements should be reviewed to ensure that new agreements based on old precedents are not entered into in violation of the Amendment.
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.