On January 18, 2023, the Competition Bureau released for consultation draft enforcement guidance on wage-fixing and no-poaching agreements, describing its approach to enforcing a new provision under the Competition Act that will make such agreements criminal offences as of June 23, 2023.

The amendment

In June 2022, Parliament amended the Act, to, among other things, add subsection 45(1.1) to the existing criminal conspiracy provisions. Subsection 45(1.1) reads as follows:

45 (1.1) Every person who is an employer commits an offence who, with another employer who is not affiliated with that person, conspires, agrees or arranges

a) to fix, maintain, decrease or control salaries, wages or terms and conditions of employment; or

b) to not solicit or hire each other’s employees.

When this provision comes into force in June, it will be a criminal offence for employers to agree to fix, maintain, decrease or control wages or other terms of employment, or to not solicit or hire each other’s employees. The provision will apply only to new agreements entered into by employers on or after June 23, 2023, although this will also capture conduct that reaffirms or implements older agreements.

Consistent with the Bureau’s approach to cartel conspiracy under the existing section 45 (which prohibits price fixing, market allocation and output restriction among competing sellers), the Guidance indicates that subsection 45(1.1) is directed at “naked restraints” on competition. In this context, “naked restraints” would concern restrictions on wages, other terms and conditions of employment, or job mobility that are not implemented in furtherance of a legitimate collaboration, strategic alliance or joint venture.

What is prohibited

According to the Guidance, subsection 45(1.1) will apply to the following:

• Agreements involving two or more unaffiliated employers - regardless of whether they compete in the supply of a product - to fix control, maintain or decrease salaries or wages or terms or conditions of employment that are material to a decision by an employee to enter into or remain in an employment contract;
• Agreements by unaffiliated employers not to solicit or hire each other’s employees. The Guidance clarifies that it is not an offence when only one party agrees to not poach another’s employees; however, the Bureau would consider the entirety of the situation including any separate agreements or tacit arrangements with another employer.

The Bureau considers that the term “employers” includes “directors, officers, as well as agents or employees, such as human resource professionals,” as well as corporations, all of whom may attract liability.

Additionally, in the Guidance, the Bureau indicates that parallel conduct by employers coupled with facilitating practices, such as the sharing of sensitive employment information or taking steps to monitor each other’s employment practices, may be sufficient to prove an agreement but conscious parallelism alone will not be considered to be a violation of the Act, which is consistent with its prior position on section 45 generally.

Defences

The Guidance discusses potential defences:

• The ancillary restraints defence (the ARD) will be available when certain “desirable” business transactions or collaborations require restraints on competition to make them efficient. The ARD is available when:
• The restraint is ancillary to, or flows from, a broader or separate agreement that includes the same parties;
• The restraint is directly related to, and reasonably necessary for, achieving the objective of the broader or separate agreement;
•  The broader or separate agreement, when considered without the restraint, does not violate subsection 45(1.1); and
• Other legal defences or exceptions may also exist, including the regulated conduct defence or the collective bargaining exemption.

The Bureau acknowledges in the Guidance that it will “generally” not criminally assess wage fixing or no-poaching provisions that are ancillary to M&A agreements, joint venture agreements or other strategic alliances, unless the clauses are “clearly broader than necessary,” or the broader agreement is a sham. Further in its examination of hypothetical examples, the Guidance suggests that the ARD might be available for staffing companies providing specialized labour to each other for short periods who include a no-poaching provision in their agreement, but is less likely to apply to a no-poaching agreement/understanding between franchisees. 

Penalties and other remedies

As of June 23, 2023, penalties for an offence under the criminal conspiracy provision (subsections 45(1) or (1.1)) include up to 14 years imprisonment or a fine at the discretion of the court or both. Private actions for damages can also be brought against employers regarding violations of the new wage fixing and no-poaching provision.

Takeaways

As of June 23, 2023, it will be an offence under the Act for unaffiliated employers to agree to fix, maintain, decrease or control wages or other terms of employment, or to not solicit or hire each other’s employees. Although the provision will apply only to new agreements entered on or after that date, and to conduct that reaffirms or implements older agreements, employers should now review any existing arrangements with other employers, or arrangements proposed or under contemplation to ensure that they are not contrary to this new criminal provision.

While the Act has already been amended, the consultation relates to the Bureau’s enforcement approach which supplements the Bureau’s existing Competitor Collaboration Guidelines. Interested parties have until March 3, 2023 to make submissions on the draft Guidance.

Members of Dentons Canada’s Competition and Foreign Investment Review Group, with its long and deep experience in Canadian competition law, are here to help you better understand how these potential reforms may affect your business and can assist you to participate in the public consultation.

If you have questions or concerns about the changes discussed in Guidance, or this topic, we would be pleased to discuss them with you. Please reach out to the authors, Adam S. Goodman,  Sandy Walker, Barry Zalmanowitz and Camila Maldi.