Wage-fixing and "no-poach" agreements between employers are now illegal under the Competition Act, subject to limited exceptions. While the Competition Bureau has issued guidelines regarding its intended approach to enforcing these changes, Canadian businesses should be aware of the potential impact of these changes on their day-to-day operations to remain in compliance with the Competition Act and avoid potentially significant fines or even prison time.
What has changed?
The Competition Act now prohibits agreements between unaffiliated employers – even those that do not compete with one another – from:
- Wage-Fixing. Fixing, maintaining, decreasing, or controlling salaries, wages, or any other "terms or conditions" of employment that may influence an employee's decision on where to work, such as benefits, bonuses, work hours, etc.
- No-Poach. Entering into agreements with other employers to not solicit or hire each other's employees; also known as "non-solicits".
Like the previous criminal conspiracy provisions, these agreements apply to both formal and informal agreements, such that even casual "understandings" between employers may result in heightened risk of investigation.
Importantly for Canadian businesses, the law does not prohibit monitoring competitors, gathering market intelligence, and making independent decisions based on the information obtained. Benchmarking exercises that use appropriate guardrails (third party provider, anonymized and aggregated information, etc.) will also not typically raise concerns. Commercially customary restrictions in the context of a legitimate broader agreement, such as non-solicitation provisions adopted in connection with M&A transactions, are also unlikely to involve material risk.
Expected enforcement approach
The Competition Bureau's enforcement guidelines outline its expected approach to enforcing the new provisions, with the following key takeaways:
- The Competition Bureau intends to focus its efforts on new agreements or efforts taken to reaffirm now illegal clauses in previous agreements – otherwise illegal clauses in existing agreements that are not reaffirmed by both parties will not typically attract the Competition Bureau's attention. Practically speaking, while Canadian businesses do not need to conduct a full audit of every contract they have with another employer, they do need to mindful of not reaffirming otherwise illegal provisions or entering into new agreements that could be problematic.
- The wage-fixing provision will be interpreted broadly – all agreements or arrangements between unaffiliated employers relating to wages, salaries, or "terms and conditions of employment" will be captured, including agreements regarding bonuses, per diems, mileage allowances, vacation time, remote work policies, etc, subject to the "ancillary restraints" defence which can save an otherwise illegal agreement where it is ancillary, reasonably necessary and directly related to a broader agreement that is not itself problematic. In practice, we expect that agreements relating to wages and salaries will raise the greatest risk.
- The new provisions create a per se offense, meaning that agreements may attract criminal liability even if wages in a market were not actually affected.
- No-poach arrangements require a "two-way" agreement to be illegal (i.e., the commitment to not hire or solicit employees is mutual), although multiple one-way agreements that function as a two-way agreement may be reviewed by the Competition Bureau.
- Reasonable non-solicits related to bona fide M&A transactions and commercial agreements are unlikely to be criminally reviewed by the Competition Bureau, provided their terms are not excessive.
- Franchisors and franchisees are not protected by the "affiliate exception" – they should give extra scrutiny to their operating contracts and ensure that any employment-related provisions are directly related to the successful functioning of the franchise relationship and not broader than necessary.
Best practices for Canadian businesses
To help ensure compliance with the new law, businesses should consider the following recommendations:
- Employment terms may be competitively sensitive: Consider treating "terms and conditions of employment" (including wages, salaries, benefits and policies like return-to-work) as competitively sensitive information similar to pricing strategies or internal business plans. Avoid discussing non-public information related to these topics outside the organization.
- Review benchmarking exercises: External benchmarking exercises related to employment, such as salary, bonus or benefit comparisons, should be reviewed to ensure proper safeguards are in place regarding the type of information provided and the information flow between participants in the exercise.
- Continue to make decisions independently: Businesses can continue gathering information about competitors' employment practices from publicly available sources, such as job postings, and use that information to make their own decisions without violating the law.
- Don't panic and stay tuned: While the language of the new provisions (even as modified by the Bureau's enforcement guidance) is extremely broad, our expectation is that the Bureau and the Public Prosecution Service of Canada will continue to exercise appropriate enforcement discretion and pursue criminal investigation or charges only in egregious circumstances. Nevertheless, the new provisions are to be taken seriously and we will be carefully observing any further statements or action from the Bureau in connection with employment issues.
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.
