On May 30, the Competition Bureau released its final wage-fixing and no-poaching enforcement guidelines (the Guidelines). The Guidelines outline the Competition Bureau’s enforcement approach to the new criminal provisions in the Competition Act (Act), which will come into effect on June 23, 2023.
The Bureau’s Guidelines were published following a public consultation process that took place earlier this year. For more information, please see our earlier update on the consultation and draft guidance.
The new wage-fixing and no-poaching offence
As of June 23, 2023, new Section 45(1.1) of the Act will criminalize agreements or arrangements between unaffiliated employers:
- to fix, maintain, decrease or control salaries, wages or terms and conditions of employment (“wage-fixing” agreements); or
- to not solicit or hire each other’s employees (“no-poach” or “no-hire” agreements).
Employers who participate in illegal wage-fixing or no-poach agreements risk significant criminal penalties, including 14 years in jail or fines at the discretion of the court, or both. Employers also face potential civil lawsuits for damages under the Act.
The Guidelines
With the new criminal wage-fixing and no-poach provisions coming into effect later this month, the Guidelines provide some welcome insight into the Bureau’s enforcement approach towards wage-fixing and no-poach agreements:
- Application of the new offence to pre-existing agreements: The new offence applies to agreements entered into on or after June 23, 2023, as well as conduct that “reaffirms or implements” pre-existing agreements entered into before that date. The Guidelines clarify that at least two parties must be engaged in the reaffirming or implementing behaviour and the Bureau is unlikely to challenge a problematic agreement when the parties take “no steps” to reaffirm or implement the agreement. Beyond stating that the Bureau’s focus is “on the intent of the parties on or after June 23, 2023,” no guidance is provided as to what sorts of “steps” or conduct would be viewed by the Bureau as reaffirming or implementing an older agreement (especially in the case of no-poach agreements, where the agreement is to not poach or solicit the other parties’ employees); however, employers are encouraged to update their existing records and agreements to ensure they accurately reflect the company’s current policies and intentions.
- Definition of “employer”: The new offence applies to agreements or arrangements between two or more unaffiliated “employers,” regardless of whether they are competitors. Although “employer” is not defined in the Act, the Guidelines state that “employers” also include directors, officers, agents and employees of a company, including human resource professionals. This sends a strong message that, in addition to pursuing corporations under the new provisions,1 individuals could be held personally liable for breaches of the new provisions.
- There must be an employer-employee relationship: The Guidelines suggest that an employer-employee relationship must exist to engage the new offence, and that agreements relating to the terms of independent contractor relationships will not be subject to criminal enforcement. In determining whether an employer-employee relationship exists, the Bureau will consider applicable provincial and federal employment laws as well as the parties’ agreements and conduct. However, employers are reminded that independent contractor relationships may evolve into employer-employee relationships over time.
- Only reciprocal no-poach agreements are caught: The new no-poaching offence prohibits employers from agreeing not to solicit or hire “each other’s” employees. The Guidelines confirm that “one-way” agreements where only one party has agreed not to poach another party’s employee will not be caught by the new criminal provisions. However, the Bureau will examine the totality of agreements between employers, which can include oral arrangements, to determine whether there are reciprocating promises not to poach each other’s employees.
- “Terms and conditions of employment” will be interpreted broadly: The new offence prohibits not only agreements that fix employee salaries and wages, but also those that fix the “terms and conditions of employment.” The Bureau has taken the view that “terms and conditions” include the responsibilities, benefits and policies associated with a job, such as job descriptions, allowances and reimbursements, non-monetary compensation, working hours, location and any directives (including non-compete clauses) that may restrict an individual’s job opportunities.
- Application of the ancillary restraints defence: The ancillary restraints defence is available where the parties can demonstrate that an otherwise illegal agreement is ancillary to a broader agreement between the same parties and is “directly related and reasonably necessary” to achieve the objective of that broader agreement2. The ancillary restraints defence is not available for standalone agreements that have no connection to a broader agreement or arrangement.
The Guidelines recognize that wage-fixing and no-poach agreements play an important role in many business arrangements, including mergers, joint ventures, strategic alliances, franchise agreements and IT and staffing service arrangements. The Bureau will generally not challenge wage-fixing or no-poach clauses in these types of agreements or arrangements under the new offence unless they are clearly broader than necessary in terms of duration or scope of affected employees, or where the business agreement or arrangement is a sham.3 However, since this is a defence, employers should keep in mind that in the face of an investigation or prosecution, the burden will be on the targeted employers to prove – with evidence – that their agreement or arrangement falls under the scope of ancillary restraints defence.
- Collective bargaining is not affected by the amendments: The Guidelines confirm that collective bargaining activities are outside the scope of the Act and will not be challenged by the Bureau.4
- Implications for franchisors and franchisees: The new offence applies both to wage-fixing and no-poach provisions in franchise agreements and to agreements or understandings between franchisees. While the Guidance suggests the Bureau will take a more measured approach to no-poach and wage-fixing provisions in franchise agreements (and will challenge them only where they are “clearly broader than necessary”), steps taken by franchisees to enforce no-poaching restraints in other franchisee’s franchise agreements may attract more scrutiny.5
- Information sharing and benchmarking: Employers are reminded to exercise caution when sharing commercially sensitive information – which as of June 23, 2023, includes employment information – in the course of collaborative activities such as mergers, joint ventures and strategic alliances, or participation in trade association and benchmarking exercises, as information sharing may imply an unlawful agreement exists between the parties.
Conclusion
Although the Guidelines’ text was revised following the public consultation earlier this year, the substance remains largely the same. The Guidelines continue to allow the Bureau broad enforcement discretion and leave open key questions such as the treatment of agreements between employers that were entered into before June 23, 2023.
Going forward, wage-fixing and reciprocal no-poach agreements and clauses in commercial agreements must be carefully drafted. To ensure these types of agreements comply with the new provisions and can benefit from the ancillary restraints defence, they should be carefully considered to ensure they are reasonably necessary to the larger agreement or arrangement to which they are related. Although the Guidelines provide some guidance to parties regarding the Bureau’s enforcement approach, they are not legally binding and the burden is ultimately on the parties to demonstrate – with evidence – that the restraint can shelter under this defence. Given the risk of criminal liability, employers should seek legal advice on applying the defence in the particular circumstances of each agreement.
