Wage-Fixing and No-Poaching Agreements Illegal on June 23, 2023

June 22, 2023

Written By Gary Solway, Adam Kalbfleisch, Zirjan Derwa, Katelyn Weller and Kolding Larson

Competition Bureau Publishes Related Enforcement Guidelines

Canada's new criminal prohibition on wage-fixing and no-poaching agreements will come into force on June 23, 2023. These new provisions under subsection 45(1.1) of the Competition Act (the Act) were enacted last year but did not immediately come into force.

The new laws will prohibit agreements between unaffiliated employers:

• to fix, maintain, decrease or control wages or other terms of employment; or
• to refrain from hiring or trying to hire one another’s employees.

The penalties for contravening these new provisions will include imprisonment for up to 14 years or a fine to be set at the discretion of the court, or both. Employers could also be subject to damage lawsuits, including class action lawsuits, from private parties who claim to have suffered damages as a result of a breach of these new provisions.¹

Given the potential severity of these penalties, employers should take steps to ensure compliance with the new provisions. At the end of this article, we provide a handful of takeaways to assist employers with their compliance efforts.

Competition Bureau Enforcement Guidelines

To assist businesses in complying with these new provisions, the Competition Bureau (the Bureau) has set out its intended enforcement approach in its recently published final Enforcement Guidelines on wage-fixing and no poaching agreements (the Guidelines).²

While the Guidelines provide clarity on several issues, they grant a considerable degree of discretion to the Bureau and fail to address all scenarios, and they do not bind private plaintiffs.

The Guidelines provide clarity on the following issues applicable to both wage-fixing and no-poaching agreements:

• Retroactivity: Only new agreements made between employers on or after June 23, 2023 will be caught, provided the parties take no steps to reaffirm or implement a previous agreement.
• Employers need not be competitors: The new provisions will apply irrespective of whether two employers are also competitors of each other; however, they will not apply to agreements as between two "affiliated" employers.³
• Employment relationship: The new provisions only apply to agreements between unaffiliated employers regarding their employees. Whether an employer-employee relationship exists will be based on provincial and federal laws and may evolve over time. 
• Sharing employment information: Sharing information does not on its own violate the new provisions, but such practices may give rise to an inference of an illegal agreement.⁴ Therefore, the Guidelines recommend that employers take care when sharing competitively sensitive information such as employment terms with unaffiliated employers.⁵
• Franchisor/franchisee agreements: The new provisions do not provide a specific exemption for franchisor/franchisee relationships (note that franchisors and franchisees are generally not affiliates under the Act). Therefore, franchisors/franchisees will need to exercise significant caution when including terms in agreements that could be considered wage-fixing and/or no-poaching.
  
  Notably, the Guidelines state that the new provisions could potentially apply to both franchisor-franchisee agreements and franchisee-franchisee agreements. While an agreement between a franchisor and franchisee may benefit from the ancillary restraints defence (described below), assuming it is not broader than necessary, this defence may be less likely to apply in the context of an agreement between franchisees (as there is no broader or separate agreement between the franchisees).
  
  While a franchisee's mere awareness that other franchisees have entered into a standard franchise agreement that contains no-poaching/wage-fixing restraints will not ordinarily raise concerns under the new provisions, concerns may arise where there is evidence that the franchisees intended to enter into a no-poaching/wage-fixing agreement with each other, either explicitly or tacitly.
• Terms and conditions of employment: In addition to prohibiting agreements between unaffiliated employers to fix salaries or wages, agreements to fix, maintain, decrease or control other terms and conditions of employment are also prohibited. The Guidelines note that the Bureau’s enforcement will generally be limited to those “terms and conditions” that could affect a person’s decision to enter into or remain in an employment contract. According to the Guidelines, this may include job descriptions, allowances such as per diem and mileage reimbursements, non-monetary compensation, working hours, location and non-compete clauses, or other directives that may restrict an individual’s job opportunities. Notably, the Bureau will use its own judgement to determine whether a particular term or condition could affect a person’s decision to enter into or remain in an employment contract; therefore, the Bureau will have considerable discretion in deciding whether to take enforcement action.
• One way non-solicit agreements permitted: The new no-poaching provision will not apply where only one employer agrees not to poach another employer's personnel and will not apply to customary non-solicitation or non-competition covenants from employees in an employment agreement. However, when there are separate agreements between two or more employers that result in reciprocating promises to not poach each other’s employees, the Bureau may take enforcement action. 
• Limiting an employee’s job opportunities: The Guidelines note that the new no-poaching provision also extends to an agreement with limitations designed to prevent employees from being solicited or hired by another party to the agreement – for example, restrictions on the communication of information related to job openings and the adoption of "biased" hiring mechanisms.

Defences:

The Guidelines confirm the availability of several defences and exceptions. These include (1) the ancillary restraints defence; (2) the regulated conduct defence; and (3) agreements between employers with respect to collective bargaining.

• Ancillary restraints defence: The new provisions do not apply where it can be shown that (1) the restraint is ancillary to, or flows from, a broader or separate agreement that includes the same parties; (2) the restraint is directly related to and reasonably necessary for achieving the objective of the broader or separate agreement referred to in (1); and (3) the broader or separate agreement referred to in (1), when considered without the restraint, does not violate the provisions.
  
  The Guidelines clarify that the Bureau will generally not assess wage-fixing or no-poaching clauses that are ancillary to merger transactions, joint ventures or strategic alliances under the new provisions. While the Guidelines also recognize the role wage-fixing and/or no-poaching agreements may play in certain other business arrangements, such as franchise agreements and staffing or IT service contracts, they clarify that the Bureau may take enforcement action when those agreements are overly broad in terms of duration or covered employees, or where the broader business arrangement is a "sham".
  
  Regrettably, the Guidelines do not provide specific guidance on the actual duration or scope of agreements that may benefit from the ancillary restraints defence. As such, employers should take care to ensure that any wage-fixing and/or no-poaching provisions negotiated as part of a broader or separate agreement are no broader than absolutely necessary to give effect to that agreement.
• Regulated conduct defence: There is a defence for conduct required or authorized by or under another Act of Parliament or the legislature of a province if the legislation expressly or by necessary implication directs or authorizes the person engaged to carry out the impugned conduct.⁶
• Collective bargaining exemption: The provisions do not apply in respect of "contracts, agreements or arrangements between or among two or more employers […] pertaining to collective bargaining with their employees in respect of salary or wages and terms or conditions of employment."⁷ As such, certain agreements entered into between unaffiliated employers in the context of collective bargaining will be exempt from the new criminal prohibition on wage-fixing and no-poaching agreements.

Takeaways

While the Guidelines do clarify the Bureau's position on the application of the new criminal wage-fixing/no-poaching provisions to some degree, there remains considerable uncertainty. Therefore, employers should:

1. Review and update policies and training manuals and ensure that directors, officers and employees in senior positions and those with recruitment responsibilities are properly trained on these new provisions.
2. Ensure that legal counsel has reviewed any template and pre-existing agreements with unaffiliated employers that contain restrictions related to wages or other terms of employment, or non-solicit provisions.
3. Consult legal counsel before entering into any commercial, M&A or other agreements that contain such restrictions.
4. Consult counsel and use best practices when sharing confidential or competitively sensitive information regarding wages and/or terms of employment, including when engaging in benchmarking activities. For example, information exchange should be managed by a third party (under confidentiality obligations), and only anonymized, aggregated and historical information should be shared with participants.

If you have any questions about the Guidelines or subsection 45(1.1) in general, please contact the Bennett Jones Competition/Antitrust group or the Employment Services group.

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