Wage Fixing and No-Poach Agreements Between Employers

Introduction

Are you an employer? If so, impending changes to Canada’s Competition Act, R.S.C., 1985, c. C-34 may affect you. On June 23, 2023, new provisions of the Competition Act (the “Act”) prohibiting wage-fixing and no-poach agreements (subsection 45(1.1)) come into force. As an employer, it’s important to get ahead of these changes to ensure compliance when they kick in.

What Does Subsection 45(1.1) of the Act Mean?

The Act is a piece of legislation enacted by the Government of Canada and enforced by the Competition Bureau, regulating the affairs of businesses in the country. On June 23, 2022, the federal government amended the Act, adding subsection 45(1.1) to the existing criminal conspiracy provisions. Subsection 45(1.1) becomes law on June 23, 2023.

Subsection 45(1.1) provides that unaffiliated employers who agree to fix, maintain, decrease or control wages or other terms of employment, or solicit or hire each other’s employees, commit a punishable offence. Unaffiliated employers include franchisors and franchisees, but do not include employers controlled by the same parent company or individual. Subsection 45(1.1) operates prospectively and therefore does not impact previous agreements between employers.

Under section 90.1 of the Act, to prosecute wage-fixing and no-poach agreements, the Competition Bureau must show, more likely than not, that an agreement “prevents or lessens, or is likely to prevent or lessen, competition substantially in a market”. However, under subsection 45(1.1), no such proof is required. Nevertheless, the Bureau must make their case beyond a reasonable doubt.

What Defences Do You Have?

Subsection 45(1.1) is subject to the existing ancillary restraints defence (ARD), which applies to related criminal conspiracy provisions of the Act. The ARD enables you to engage in otherwise illegal agreements, insofar as they are ancillary to and reasonably necessary for achieving the objective of a broader (legal) agreement. If there is a less restrictive way of realizing such objective, you may be in violation of subsection 45(1.1). Wage-fixing and no-poaching clauses that are ancillary to merger transactions, joint ventures, or strategic alliances are permissible. Ultimately, to determine whether the ARD applies, a fact-specific assessment must be undertaken.

What are the Penalties for Violating Subsection 45(1.1)?

Maximum penalties include imprisonment for up to 14 years and/or a fine at the discretion of the court. Furthermore, violating subsection 45(1.1) may result in employees seeking private damages or, in extreme cases, filing a class action lawsuit against you.

How Do I Remain Compliant with Subsection 45(1.1)?

There are several things you can do to remain complaint with subsection 45(1.1):

1. Be weary of information you share with other employers. While you can still pursue actions related to employment that are influenced by the actions of other employers (e.g., lowering wages after a fellow employer has done so), they must be independent. Do not share sensitive employment information or monitor another employer’s employment practices.
2. Review existing agreements to ensure they are compliant with the Act. Ensure existing agreements do not contain wage-fixing or no-poach provisions, unless they fall under the ARD exception.
3. Do not enter into agreements with other employers to fix, maintain, decrease, or control salaries or wages. Additionally, do not discuss terms/conditions of employment with other employers that could presumably influence an employee’s decision regarding where to work. Such factors may include non-monetary compensation, working hours, and non-compete clauses.
4. Do not enter into agreements with other employers that aim to prohibit employees from being hired by one another. While agreeing to not poach another employer’s employees is not an offence (insofar as it is only one-sided), collusion regarding job openings and hiring mechanisms is.

The Government of Canada offers a useful guide discussing these changes to the Act, and potential situations that may engage subsection 45(1.1).

If you are concerned about how subsection 45(1.1) may influence you and would like to discuss your options, contact our team of skilled and experienced lawyers.

*This article does not constitute legal advice; always consult legal counsel.