UPDATE: On May 30, 2023, the Competition Bureau published its finalized guidelines reviewing its planned approach for enforcing the new criminal offence. We’ve provided updated information relating to the Bureau’s guidance with respect to these amendments in this new post.
Amendments to the Competition Act that make it a criminal offence for non-affiliated employers to enter into wage-fixing or no-poaching agreements will take effect on June 23, 2023. Are you ready?
Last year, we wrote that wage-fixing and no-poach agreements between employers were set to become an offence in Canada. The effective date is now approaching quickly, and employers would be well advised to review their agreements and policies to ensure they’re compliant with the amended legislation. Below, we’ve outlined key changes to the Competition Act.
Changes to the Competition Act
The Budget Implementation Act, 2022, No. 1 (the “BIA”) was tabled on April 7, 2022, proposing changes to several pieces of federal legislation, including the Competition Act. The BIA was passed by Parliament and received royal assent on June 23, 2022.
Section 257 of the BIA introduces a criminal offence into the Competition Act applicable to buy-side agreements between non-affiliated employers, such as wage-fixing and no-poaching agreements. Although most sections came into force upon royal, section 257 of the BIA was set to come into force on June 23, 2023, the first anniversary of royal assent.
Prior to this amendment, the criminal provision of the Competition Act (section 45) did not apply to buy-side agreements and only applied to supply-side agreements between competitors. Soon, under subsection 45(1.1), it will also be a criminal offence for non-affiliated employers to enter certain buy-side agreements, regardless of whether they are competitors.
Draft enforcement guidelines
Earlier this year, the Competition Bureau (the “Bureau”) released corresponding draft Enforcement guidance on wage-fixing and no poaching agreements (the “Draft Guidelines”) for public feedback. The Draft Guidelines review the Bureau’s interpretation of subsection 45(1.1) and its planned approach for enforcing the offence.
The Draft Guidelines provide useful insight for employers preparing for the new provision taking effect. Although they may be subject to change before they are finalized, it is unlikely they will change substantially.
What you should know
Application
Unlike the supply-side criminal offence, which applies to competitors, subsection 45(1.1) more broadly applies to certain buy-side agreements between non-affiliated employers. Accordingly, this provision may target agreements between employers regardless of whether or not they are competitors.
“Employers” include directors and officers, as well as agents or employees. The Draft Guidelines explicitly state that this definition extends to human resources professionals. Individual employees as well as the corporation the individual is employed by may be subject to prosecution under subsection 45(1.1) for entering into a prohibited agreement.
Timing
There will be no retroactive liability under subsection 45(1.1). However, the provision will apply to conduct that reaffirms or implements older agreements that breach the provision after the provision comes into effect on June 23, 2023. This means you should review your agreements to ensure that you are not in breach of the new provision once it comes into force.
Information sharing
Pursuant to subsection 45(3), prohibited buy-side agreements may be established by implication with circumstantial evidence even if there is no formal written agreement.
In the Draft Guidelines, the Bureau states that “[p]arallel conduct coupled with facilitating practices, such as sharing sensitive employment information or taking steps to monitor each other’s employment practices, may be sufficient to prove that an agreement was concluded.”
Accordingly, the Bureau advises employers to exercise caution in sharing information with other employers in the course of collaborative activities. Conduct such as benchmarking employment terms could lead to prosecution under the new provision.
Wage-fixing agreements
Paragraph 45(1.1)(a) of the Competition Act prohibits agreements between unaffiliated employers to fix, maintain, decrease or control salaries, wages or terms and conditions of employment. The Draft Guidelines identify that the Bureau will generally only consider terms and conditions of employment that could affect a person’s decision to enter into or remain in an employment contract. Examples provided by the Bureau include working hours, non-compete clauses and job descriptions.
No-poaching agreements
Paragraph 45(1.1)(b) of the Competition Act prohibits agreements between unaffiliated employers to not solicit or hire each other’s employees. The Draft Guidelines identify that the provision does not apply to a one-sided agreement not to poach another employer’s employees. Rather, the provision is restricted to employers mutually agreeing to not solicit or hire each other’s employees.
Ancillary restraints defence
In the Draft Guidelines, the Bureau discusses the application of the ancillary restraints defence to an offence under subsection 45(1.1).
This defence is available for certain business transactions where the restraint on competition is necessary to make an agreement possible or efficient. The restraint must be ancillary to the broader agreement and reasonably necessary, and the broader agreement must not violate subsection 45(1.1) when considered without the restraining provision.
In particular, the Bureau recognizes the standard use of non-solicitation clauses when purchasing a business. The Bureau notes that it will generally not assess wage-fixing or no-poaching clauses that are ancillary to merger transactions, joint ventures or strategic alliances under the criminal track unless the provision is broader than necessary or the merger, joint venture or strategic alliance is a sham. However, the Bureau may still review the agreement under the civil track.
The Bureau also states that it is unlikely the defence will apply to agreements between franchisees. However, the assessment will be case-specific and the defence may apply where appropriate.
Penalties
As of June 23, 2023, a person found guilty of an offence under subsections 45(1) or (1.1) may be imprisoned for up to 14 years, subjected to a fine at the discretion of the court, or both.
Takeaways
Employers should be aware of the upcoming change and review their agreements, policies and training materials to ensure that their contracts and practices will not be offside this legislation once it takes effect on June 23, 2023.
The change may be particularly relevant to human resources professionals or other senior executives who participate in hiring or determining the terms of employment, and/or who may be in informal communications with other employers.
If you have questions about how the legislative change affects your organization, please do not hesitate to contact a member of our Competition Law team.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.