The Canadian Competition Act was recently amended to, among other things, criminalize wage-fixing and no-poach agreements between unaffiliated employers1. Following a one-year grace period for permitted Canadian employers to ensure they are in compliance, the criminal prohibition will come into effect on 23 June 2023.
Introducing a criminal prohibition against wage-fixing and no-poach agreements between employers brings Canadian competition law in line with other jurisdictions, including the United States, that already prohibit certain labour-related agreements2. However, all businesses operating in Canada should know the specifics of the Canadian prohibition and the Competition Bureau’s approach to enforcement.
This client alert provides a primer on the new prohibition, identifies key takeaways from the Competition Bureau’s recently published Enforcement Guidelines on Wage-Fixing and No Poaching Agreements, and provides compliance tips to ensure businesses are prepared.
Wage-fixing and No-poach Agreements Between Unaffiliated Employers Are Prohibited
The new prohibition makes it a per se criminal offence for an employer to conspire, agree or arrange with another, unaffiliated employer to (a) fix, maintain, decrease or control salaries, wages or terms and conditions of employment (wage-fixing agreements), or (b) not solicit or hire each other’s employees (no-poach agreements). Per se offences do not require any evidence of anticompetitive effects to prove the offence. “Employer” is a broad term that includes individuals who are human resources professionals, agents or employees, and directors and officers.
Employers who contravene the new prohibition may be imprisoned for up to 14 years, and/or subject to a fine at the discretion of the court3. Corporations may also be liable where the corporation’s “senior officers” are the employees that entered into the prohibited agreement. Separately, employers may also face civil actions from private litigants, including follow-on class actions4. Follow-on class action litigation has significantly increased in Canada, particularly where the claimants can rely on the criminal evidentiary record to demonstrate that the contravention occurred.
A person who has experienced a loss due to an unlawful wage-fixing or no-poach agreement may initiate a civil action against the employers who are parties to the contravening agreement. In recent years, follow-on class action litigation has significantly increased in Canada, particularly where the claimants can rely on the criminal evidentiary record to demonstrate that the contravention occurred.
Defences, Exemptions, and the Immunity and Leniency Programs
The new prohibition is intended to prohibit “naked restraints” on competition, including restraints on wages or job mobility. The Commissioner of Competition has confirmed that the Bureau will exercise its enforcement discretion, and will prioritize wage-fixing and no-poach agreements between employers that would otherwise compete in the purchase of labour, and agreements that could affect a person’s decision to enter into or remain in an employment contract.
There are certain defences and exemptions that employers can raise:
- Ancillary Restraints Defence. The ancillary restraints defence is available where the employer establishes, on a balance of probabilities, that the labour restraint is ancillary to, or flows from, a broader or separate agreement that includes the same parties; the labour restraint is directly related to and reasonably necessary for achieving the objective of that broader or separate agreement; and that broader or separate agreement, when considered without the labour restraint, does not violate the new prohibition.
- Regulated Conduct Defence. The regulated conduct defence is available where the employer’s conduct is required or authorized by or under another provincial or federal law.
- Collective Bargaining. Agreements between employers with respect to collective bargaining with their employees over salaries, wages, or terms or conditions of employment are exempt.
An employer who has entered into a wage-fixing or no-poach agreement, and who believes the agreement contravenes the new prohibition, may also avail itself of the Bureau’s Immunity and Leniency Programs.
The Bureau will assess the validity of any defence before deciding whether to pursue the alleged agreement under the criminal prohibition, or alternatively under the civil reviewable matters provisions of the Competition Act, which may be used to challenged competitor agreements with actual or likely anticompetitive effects.
Salient Points of the Bureau’s Enforcement Guidelines
The Bureau published the Enforcement Guidelines on 30 May 2023. The Enforcement Guidelines describe how the Bureau intends to enforce the new prohibition and assess alleged contraventions. The Bureau’s Enforcement Guidelines should be read in conjunction with the Bureau’s Competitor Collaboration Guidelines, which apply to other forms of competitor agreements.
While the Enforcement Guidelines are comprehensive, we would highlight the following key take-aways:
- The bureau will investigate and take enforcement action against agreements entered into, re-affirmed or implemented after 23 June 2023. The new prohibition in principle only applies to agreements made between employers on or after 23 June 2023, but can also apply to conduct that reaffirms or implements agreements that were made before then. The Enforcement Guidelines confirm that pre-existing agreements are unlikely to raise concerns, provided the parties to the agreement take no steps to reaffirm or implement the labour restraint on or after 23 June 2023, which would require a “meeting of the minds”.
- Wage-fixing and no-poach agreements between Affiliated employers are not prohibited. The new prohibition only applies to wage-fixing and no-poach agreements between employers who are not affiliated with one another within the meaning of the Competition Act. While the affiliation rules are complex and require fact-specific confirmation, wage-fixing or no-poach agreements between two or more corporate entities that are controlled by the same parent company within the meaning of the Competition Act, for example, would not violate the prohibition.
- The bureau may investigate relevant employment relationships. The new prohibition applies to certain types of agreements between employers regarding their employees. If an employer does not have an employer-employee relationship with individuals who work for the business, then the prohibition would not apply. Whether an employer-employee relationship exists depends on the nature of their interactions and applicable provincial and federal laws. The Enforcement Guidelines confirm that if a party to an impugned agreement includes a business and independent contractors, the Bureau will assess whether the independent contract relationship is actually an employer-employee relationship.
- Only “two-way” no-poach agreements are prohibited. The Enforcement Guidelines confirm that only no-poach agreements that contain “two-way” restraints are prohibited. This is because the provision prohibits agreements between unaffiliated employers to not solicit or hire each other’s employees. The Bureau states that beyond explicit agreements to not solicit or hire employers, it will investigate agreements that may be in furtherance of a no-poach agreement, including for example, restricting how job opening information is communicated or adopting biased hiring mechanisms. Significantly, service agreements, including for IT and consulting services, which often contain “one-way” restraints preventing the service provider from soliciting or hiring the business’ employees, would not contravene the new prohibition.
- Exercise caution when sharing information about employment terms. Sharing commercial and competitively sensitive information does not contravene the Competition Act. However, sharing such information raises potential competition risk where the circumstances in which the information is shared permit an inference that a prohibited agreement exists. When sharing or information about or collaborating with other employers in respect of employment terms, businesses should exercise the same caution as they would for pricing, sales, customers and other competitively sensitive information.
- Commercial agreements and business arrangements containing wage-fixing and no-poach provisions may contravene the prohibition. The Enforcement Guidelines recognize that labour restraints can serve legitimate purposes in commercial agreements and business arrangements, and can help to stabilize and protect parties’ business interests while advancing pro-competitive objectives. The Bureau is most likely to investigate commercial agreements where the labour restraints are clearly broader than necessary in terms of the duration (e.g., multi-year restraints) or affected employees (e.g., unskilled labour), or business arrangements that are clearly a sham.
While it is difficult to predict what form of enforcement may be taken and how quickly after the new prohibition comes into force it may be pursued, the Bureau has been aggressive in its enforcement of other areas under the Competition Act, and we anticipate that the Bureau will want to send a clear and early message about its willingness to tolerate practices that contravene the new prohibition.
Compliance tips for businesses operating in Canada
With the criminal prohibition on wage fixing and no-poach agreements coming into effect on 23 June 2023, businesses should be taking steps to ensure their employment activities are compliant5, including:
- Update existing compliance policies and training. Businesses should review and update all existing competition/antitrust policies and compliance programs in light of the new prohibition. Compliance training should be expanded to provide training to employees in human resources, compensation, and procurement roles who may not have historically participated in competition compliance training.
- Establish guidelines for sharing information related to employment terms. Employers should establish guidelines for how they will share any information relating to employment terms or collaborate in respect of employment terms with other employers in Canada to ensure these practices, where engaged in for legitimate reasons, raise minimal competition risk. Best practices include using a neutral third party to manage information exchanges, exchanging historical information, and anonymizing shared information.
- Review template commercial agreements and business arrangements. Businesses should review all template commercial agreements that contain wage-fixing or no-poach clauses, and assess all business arrangements to scope or remove labour restraints or determine that the clauses would clearly benefit from the ancillary restraints defence or other available exemptions or defences.
- Engage employees responsible for hiring and compensation to identify and scope potential risk. Legal and/or compliance teams should engage with their HR team to identify and scope business areas and activities that may pose higher competition risk and enable the business to proactively mitigate and/or manage potential risk.
- Continually assess relationships with independent contractors. As the new prohibition does not apply to independent contractor relationships, businesses should continually assess their relationships with independent contractors to ensure that the relationship does not have characteristics that may cause it to be construed as, or evolve into, an employer-employee relationship.
Please see our video chats for more information on dealing with compliance issues under the Competition Act.
3 The 2022 amendments to the Competition Act also removed the previous CAD $25 million limit on fines for criminal agreements between competitors to fix prices, restrict supply or allocate markets
5 Employers: Comply or Face Criminal Liability on No Poach and Wage Fixing Agreements Under the Competition Act (Video Chat)