Canadian Guidance on Wage-Fixing and No-Poaching Agreements

The Competition Act has been amended to include a new criminal offence for employers that enter into agreements to fix wages, or that agree not to solicit or hire each other’s employees. The amendment will come into force in June 2023. The Competition Bureau has released draft guidelines on how it will interpret and enforce the amendment. The key things all employers should know about the amendment and the guidelines are as follows:

• Audit Your Employment Practices. Given the possibility of criminal prosecution (and significant fines and jail terms), employers should review their existing employment practices, focusing specifically on whether the law impacts any agreements or communications with third parties that concern how their employees are compensated or treated, or any non-solicitation agreements.
• Understand Industry-Specific Implications. The amendment and the guidelines have different implications for employers in different industries. For example, “gig economy” employers should assess how this legislation applies (or not) to contractors who are not traditional employees. Professional firms should assess how they can appropriately protect valuable employees who work directly with clients.
• M&A Considerations. Non-solicitation provisions are common in M&A. The Bureau’s guidance that it will not “generally” use the new criminal provision to examine non-solicitation agreements in the M&A context is helpful. However, the Bureau’s guidance is not absolute or binding, and care will be required to ensure that the multitude of agreements that are used in M&A (including early stage agreements, like NDAs and Exclusivity Agreements) do not create legal risk.

This update provides background to the amendment to the Competition Act, and summarizes key insights about different aspects of the Bureau’s guidelines.

Brief History

The Act was amended through the 2022 Budget Implementation Act, and the new provision will enter into force June 23, 2023. The impetus for this change includes a number of events:

• In June 2020, Canada’s top three grocery chains simultaneously retracted their $2-per-hour “hero pay” raises for front-line workers during the pandemic. This attracted significant political attention. Subsequently, the Bureau indicated publicly that the Act’s criminal conspiracy provisions did not apply to agreements for the “purchase” of labour, including wage-fixing agreements.
• In the US, the Department of Justice (“DOJ”) and Federal Trade Commission have been using antitrust legislation to examine wage-fixing and no-poaching agreements, including following issuance of their 2016 Antitrust Guidance for Human Resource Professionals.¹  Since that time, the US DOJ has attempted to prosecute or settled a number of “naked” no-poach and wage-fixing agreements.²
• A number of 2020 and 2021 cases in Canada’s federal and provincial Superior Courts dismissed claims by plaintiffs alleging wage-fixing and no-poach agreements as not contrary to the Act’s criminal provisions. Consistent with the Bureau’s public statements, these decisions emphasized that the intended effect of the Act’s relevant criminal provisions was aimed at hardcore cartel agreements whereas other “buy-side” types of agreements warranted only civil intervention.³

Insights About the Amendment and Guidelines Regarding Wage-Fixing and No-Poach Agreements

On June 23, 2023, the new criminal provision (section 45(1.1)) will come into force, making it a per se offence for employers to enter into wage-fixing or no-poach agreements – in other words, these agreements will be illegal regardless of their effect on competition.⁴ The penalty for violating this new provision includes imprisonment for up to fourteen years or a fine to be set at the discretion of the court, or both.

The Bureau’s guidelines set out how it will interpret and enforce this new provision. Here are ten insights about the amendment and the Bureau’s guidance:

1. Affiliated Parties. The amendment does not apply to employers that are affiliated (i.e., ultimately controlled by the same entity). Thus, corporate groups can continue to coordinate their HR matters across all entities within their organization without risk.
2. Employers, Not Competitors. The civil price-fixing provision of the Act applies only to companies that are “competitors”. By contrast, the amendment applies to all employers that enter into agreements regarding wages, etc., whether or not they compete. The actions of persons acting for them, including directors, officers, agents, and employees, may be attributed to the employer, or those individuals may be “employers” themselves (and therefore subject to the available sanctions).
3. Employment Relationship Required. The amendment applies to agreements in respect of persons in an employment relationship (which is defined by laws related to employment and “other circumstances under which the relationship was entered into”). It is unclear what “other circumstances” will be relevant, but it is questionable whether a court would enter a criminal conviction for any conduct in respect of persons whom employment law would not recognize as being in an employee-employer relationship.
4. Conscious Parallelism. While it is not a violation for a business to act independently with awareness of the likely response of other employers or in response to the conduct of other employers (“conscious parallelism”), the guidelines warn the Bureau may attempt to treat parallel conduct paired with other facilitating practices (e.g., exchanging information about each other’s employment practices) as a violation. The guidelines suggest that merely “taking steps to monitor” other employers’ practices could be a facilitating practice, but there is no modern history of Canadian courts accepting that mere monitoring of a rival constitutes an agreement.
5. Terms and Conditions of Employment. The guidelines warn that the prohibition on wage-fixing will extend to any “terms of employment” so long as it “could affect a person’s decision to enter into or remain in an employment contract.” This broad language could apply to a range of HR matters, including a company’s vacation policies or pandemic-return-to-work policies. While the Bureau will likely exercise discretion about which types of cases to investigate or enforce, private litigants could use this broad language to bring private actions in provincial Superior Courts or the Federal Court.
6. Reciprocity Not Required, Except When it Is. The guidelines counsel that, because of the specific language of the amendment, it is a crime for Company A to enter into an agreement with Company B about Company A’s wages (but not Company B’s). However, it is not a crime for Company A to agree not to poach Company B’s employees unless Company B also agrees not to poach Company A’s employees.
7. Dealing with Unions. The amendment applies to all employees, including unionized labour. However, the guidelines do not explain how the amendment interacts with other laws that govern unionized labour, including section 4(1)(c) of the Competition Act. That section expressly permits agreements between two or more employers in “a trade, industry or profession” that pertains “to collective bargaining with their employees in respect of salary or wages and terms or conditions of employment.”
8. Risk of Private Actions. The amendment creates a criminal offence. Under the Competition Act, private parties can bring private damages suits or seek other orders for such offences before provincial Superior Courts or the Federal Court, including class actions. Employers should understand how plaintiffs’ lawyers, unions or other stakeholders might attempt to use the amendment in private actions.
9. Some Protection for M&A and Joint Ventures, But Questions Remain. The amendment is subject to the “ancillary restraints defence”, which shields restrictive agreements from criminal prosecution provided they are (i) ancillary to a broader and separate agreement that is not illegal, and (ii) directly related and reasonably necessary for that other agreement. The guidelines confirm the Bureau will not “generally” assess wage-fixing or no-poaching clauses that are ancillary to mergers or joint ventures under the criminal provision, or “second guess” the restrictions created by employers in these contexts. However, the guidelines do not provide counsel about when restrictions can be utilized in common types of M&A agreements where provisions related to employees are frequently found (e.g., NDAs, Exclusivity Agreements, Purchase Agreements, Transition Services Agreements). Careful planning with competition counsel will be required.
10. Non-Compete Agreements Not Impacted. The US Federal Trade Commission has recently proposed a rule that would ban non-compete provisions from employment contracts in the US. The amendment and the guidelines do not apply to non-compete provisions in employment contracts, and those agreements remain legal under Canadian competition law.

For further information on these guidelines or the amendment to the Act, please contact any member of our Competition and Foreign Investment Group.