No Poach, No More: New Competition Act Criminal Offences Affecting Employers
As previewed in our earlier publication on the recent amendments to the Competition Act (the “Act”), new prohibitions on wage-fixing and no-poach agreements will be coming into force on June 23, 2023. The amendments to section 45 of the Act will make it a criminal offence for unaffiliated employers to enter into agreements to fix salaries, wages or terms and conditions of employment, or to refrain from soliciting or hiring another firm’s employees. These buy-side agreements between employers will carry severe maximum penalties, including imprisonment and unlimited fines, and can lead to follow-on class actions. Accordingly, below we outline the new offences and their expected impact on employers.
How did we get here?
As with many issues, developments in the United States were the catalyst for Canadian interest in no-poach and wage-fixing enforcement. In October 2016, the U.S. Department of Justice (Antitrust Division) and the Federal Trade Commission issued joint guidelines for human resource professionals on how antitrust laws apply to employers’ hiring and compensation practices. These materials laid out the agencies’ intention to pursue naked no-poach and wage-fixing agreements between employers on the criminal – and not civil – standard. The agencies have since pursued several such cases.
Influenced by its sister agencies across the border, Canada’s Competition Bureau (the “Bureau”) issued a policy statement in November 2020 criticizing the limitations of the current section 45 of the Act, which only criminalizes supply-side agreements (i.e., agreements that focus on the sale or supply of products or services), as opposed to buy-side agreements (i.e., agreements that focus on the business’ inputs, including labour).
Within a year, the House of Commons Standing Committing on Industry, Science and Technology released a report highlighting the gap between the Canadian and American approaches to buy-side agreements and recommending that Canada align its regime with its southern neighbours. Formal amendments to the Act were tabled in the House of Commons on April 28, 2022 as part of the government’s Budget bill, and received royal assent on June 23, 2022, with the criminal provisions set to come into force exactly one year later.
What conduct will be prohibited?
The new amendments to section 45 of the Act will criminalize two categories of agreements between unaffiliated employers:
- Agreements to fix, maintain, decease or control salaries, wages, or terms and conditions of employment; and
- Agreements not to solicit or hire each other’s employees.
Such agreements need not be explicit to violate section 45; courts can infer the existence of such agreements from circumstantial evidence suggesting a meeting of the minds between the parties. Even informal discussions and information-sharing may therefore raise competition risk.
As we have previously reported in our blog, non-compete restrictions (and some non-solicitation restrictions that have the effect of restricting worker mobility) are prohibited in Ontario (subject to narrow exceptions for sale of business agreements and C-Suite employees) as a result of recent amendments to the Employment Standards Act (the “ESA”) which became effective in October 2021. Such restrictions also face significant enforceability risk in the other provinces where courts will only enforce a restrictive covenant against employees that goes no further than is reasonably necessary to protect the employer’s legitimate proprietary rights and does not unduly restrain an employee from making use of their skills and talents, or earning their livelihood.
Generally speaking, the amendments to the Act appear to be in line with these broader ESA changes (albeit, more aggressive). Guidance from the Bureau (which is expected in the New Year) will hopefully clarify what will and will not be caught by the new offences. In the case of the existing criminal provisions barring price-fixing, supply restriction and market allocation, the Bureau is circumspect with its enforcement, only pursuing criminal prosecution against naked cartels.
Moreover, while the offences themselves are broadly drafted, there are available exceptions and defences that may temper their impact.
- The Affiliation Exception: The new offences do not apply to wage-fixing or no-poach agreements between affiliated entities.
- The Ancillary Restraints Defence: There will be a complete defence where the party can establish, on a balance of probabilities, that: (i) the impugned agreement is ancillary to a broader or separate legitimate agreement between the parties; and (ii) the wage-fixing or no-poach provision is related to and reasonably necessary to give effect to the legitimate agreement. However, certain agreements that may be defensible, where reasonably limited in scope, could include:
- No-poach and wage-fixing agreements related to otherwise legitimate joint ventures;
- Non-solicitation clauses in merger agreements;
- Staffing agreements, secondments and assignments; and
- Sub-contractor agreements.
- Collective Bargaining Exemption: The Act does not apply to collective bargaining activity between multiple employers in a trade, industry or profession with their employees in respect of salary or wages or terms or conditions of employment.
- Immunity and Leniency Programs: The Bureau has established Immunity and Leniency Programs to help uncover and stop criminal anti-competitive conduct. The first party implicated in conduct that may violate the Act’s criminal provisions to come forward and offer to cooperate with the Bureau may qualify for immunity from prosecution. Any subsequent parties implicated in the conduct who offer to cooperate with the Bureau may qualify for leniency in sentencing.
Employers should also note that section 36 of the Act provides a statutory cause of action to any person (or class of persons) who has suffered a loss or damage arising from a breach of any of the criminal provisions in Part IV of the Act, including section 45. Critically, section 36 does not require that the contravening party be found guilty of an offence under Part IV – simply engaging in conduct contrary to section 45 is sufficient to establish a cause of action.
The good news is that employers have until June 23, 2023 to identify areas of risk and come up with a game plan for compliance. To assist, we have highlighted common pressure points for employers to consider as they evaluate the application of the amendments to their operations. Where employers identify risk, they should consult with internal and external counsel to ensure the risk is mitigated prior to the amendments coming into force.
In the ordinary course of business:
- Consider whether your organization participates in any industry benchmarking exercises relating to wages and terms of employment (i.e., information exchanges between companies about hiring practices, salaries, terms of employment, etc.) and take steps to mitigate the associated competition risk. These activities could be used by the prosecution (or individual plaintiffs) as evidence to support allegations of wage-fixing between the participating employers. The risk of such inference may be mitigated by ensuring data is collected by a neutral third party, ensuring all data is aggregated and anonymized, and ensuring data is historical and not prospective or predictive.
- Consider whether and how your organization receives information about other organizations’ employment practices and any practices in place to document why and how your organization came into possession of such information.
- Consider your organization’s participation in various industry associations, discussions and meetings with other organizations and the extent to which these forums raise issues relating to wages and terms of employment.
- Consider the extent to which any commercial agreements with third parties include provisions relating to wage-fixing or non-solicitation of employees, and the necessity and reasonableness of these provisions.
In the HR context:
- Consider whether your organization has any arrangements with other unaffiliated parties, that could broadly be construed as wage-fixing or no-poaching arrangements.
- Update your company policies (e.g., Code of Conduct, Competition Compliance Policy) to account for the new offences.
- Provide compliance training on the new offences for employees and consider extending training not only to executives and HR, but to all levels of management.
In the transactional context:
- Consider the business rationale and reasonableness of non-solicitation clauses or other interim employee-related restrictions (e.g., wage increase restrictions) in purchase and sale agreements. Are they beyond “market” in duration or scope?
- Be prepared to explain why restrictive terms are reasonable and necessary to achieve the objectives of the broader transaction agreement.
Our team continues to carefully monitor updates to how the amendments will be enforced and will provide updates as they become available. If you have any questions regarding the impact of these amendments on your workplace, please do not hesitate to contact any member of our Labour & Employment or Competition/Antitrust & Foreign Investment teams.
Competition Act Employment Standards Act No-Poach Wage-Fixing