Businesses beware – changes to the Competition Act prohibit employee poaching and wage-fixing

Last summer, on June 23, 2022, significant amendments were passed to update Canada's Competition Act. The Competition Act is a federal statute that regulates competitive business practices in Canada, including setting out comprehensive civil and criminal penalties for anti-competitive practices. The recent amendments were part of a "preliminary phase of modernizing" Canada's competition regime.

The amendments covered a broad range of business practices, including an important employment law related provision. Effective June 23, 2023, wage-fixing and no-poaching agreements between non affiliated employers will be strictly prohibited. Violations will result in hefty penalties, including imprisonment of up to 14 years, a fine, or both.

Below we provide a general overview of some of the key "need to know" information. Please keep in mind this is for guidance purposes only. Each case is unique, and we recommend getting legal advice about how these amendments may impact your business.

What is prohibited?

To break it down, it will now be a criminal offence for unaffiliated employers to enter either of the following:

• Wage-fixing agreement:
  • An agreement to fix, maintain, decrease or control salaries, wages, or terms and conditions of employment.
• No-poaching agreement:
  • An agreement not to solicit or hire each other's employees.
  • Note, the agreement must be mutual. If Company A agrees to not poach Company B's employees, but Company B does not make the same promise, it is unlikely there would be a violation of the no-poaching agreement provision.

Note, these agreements do not need to be written. It is possible that such agreements may be inferred by circumstantial evidence. However, they do need to be proven to exist beyond a reasonable doubt. Meaning, while a Court may infer the existence of the agreement from the surrounding circumstances, the threshold for proving this kind of agreement exists is high.

Do the prohibitions apply to existing agreements?

Yes and no. The Enforcement Guidelines on Wage-Fixing and No Poaching Agreements (the "Guidelines") stipulate that the provision will apply to:

• New agreements entered into on or after June 23, 2023; and
• Conduct that reaffirms or implements older agreements.

The Guidelines suggest that pre-existing wage-fixing and no-poaching agreements will not prima facie be problematic unless steps are taken to act on them on or after June 23, 2023.

Out of prudence, however, we would recommend that if an employer has entered into a wage-fixing or no-poaching agreement that would violate the new provision, it takes steps to clearly terminate the agreement prior to June 23, 2023 or seeks advice on whether an exception would apply.

Are there any exceptions?

The wording of the amendment itself imposes some limits on the scope of the prohibitions. Specifically:

• Affiliated employers:
  • This prohibition only applies to unaffiliated employers. Affiliated employers are not prohibited from entering into these agreements.
• Contractors:
  • The provision stipulates that employers cannot enter wage-fixing agreements or non-poach agreements relating to employees. The Guidelines suggest that whether an employer-employee relationship exists between parties will depends on the laws and circumstances. In our view, if there is genuinely no employment relationship, but rather a business-to-business contractor or services relationship, the prohibitions should not apply.
  • However, employers should be alert to the fact that a genuine contractor relationship can evolve over time and should re-assess relationships as needed to ensure they are not offside these new provisions or other applicable laws.

Other carve outs under the Competition Act include the following:

• The ancillary restraints defence ("ARD"):
  • The Competition Act provides a defence to employers if:
  • They can establish, on the balance of probabilities, that:
  • The agreement is ancillary to a broader or separate agreement or arrangement that includes the same parties; and
  • The agreement is directly related to, and reasonably necessary for giving effect to, the objective of the broader or separate agreement or arrangements; and
  • The broader or separate agreement or arrangement, considered alone, does not contravene the prohibition.
  • The ARD has the potential to save otherwise impugned agreements where the parties can prove the wage-fixing or no-poaching aspect of the agreement is a critical part of a larger agreement. Relevant considerations include the duration, subject matter, and geographic scope of the restraint, among other considerations. For example, the ARD might apply where there is a mutual agreement to not poach certain employees following a sale of business for one year. However, it is important to note that the scope and exact application of the ARD has not yet been considered by the courts in this context.
• Collective agreements:
  • The Competition Act generally does not apply to collective bargaining activities or collective agreements between employers in the same trade, industry, or profession.
• Immunity and leniency:
  • Immunity may be granted under the Competition Bureau's Immunity and Leniency Program. This may cover a situation where a potential offender provides sufficient information to the bureau about the offence.
• Other:
  • Other defences or exceptions may apply under the Competition Act. Employers are encouraged to speak with their lawyer about their unique circumstances.

How does this work in practice?

Below we provide some examples of how this new prohibition may operate in practice. Please note, these examples are for illustrative purposes only. We always recommend speaking with your lawyer about your unique situation.

Example A:

Company A and Company B are unaffiliated entities. However, they operate in the same industry and believe it would be detrimental to both entities if they could hire each other's employees. The two directing minds of Company A and Company B set up a meeting one afternoon and mutually agree they will not hire each other workers. Although the agreement is not reduced to writing, it is communicated throughout both entities and well known that Company A will not hire Company B's workers, and vice versa.

Would this violate the no-poaching agreement provision?

Yes, it is likely the verbal agreement entered into by Company A and Company B would fall squarely within the no-poaching agreement provision.

Example B:

Company A is a wholly owned subsidiary of Company B. Company A and Company B enter into a written agreement that neither Company A nor Company B will pay their managerial staff more than $80,000 per annum.

Would this violate the wage-fixing provision?

It is likely that it would not (meaning this practice is likely to be safe). Because Company A and Company B are affiliated, the prohibition on wage-fixing agreements would not apply to an agreement between them.

Example C:

Company A contracts with Company B, an unaffiliated entity, to provide it with extra employees to work on a project for Company A. As part of the agreement between Company A and Company B, Company A stipulates that any employees provided through Company B may not be remunerated more than $20 per hour. In turn, Company B asks that Company A also agrees to limit the wages of Company A's employees who work on the project to $20 per hour. Company A agrees.

Does this agreement between Company A and Company B violate the wage-fixing provision?

The short answer is maybe. The agreement between Company A and Company B is an agreement between unaffiliated entities that fixes the wages of employees. It is therefore likely it would be captured by the wage-fixing provision. However, it is possible that the agreement may be saved by the ARD. In this case, Company A and Company B would need to prove that the agreement to fix wages is part of a broader agreement, and that the agreement to fix the wages is directly related to and reasonably necessary to give effect to the broader agreement. If they can prove each of these elements, the agreement may be saved. If they can't, they may be in hot water.

How are these provisions enforced?

Complaints can be filed with the Competition Bureau if an individual believes there has been a violation. The Competition Bureau is an independent law enforcement agency that is responsible for administering and enforcing the Competition Act, among other things. If the Commissioner of the Competition Bureau concludes an offence has been committed, it may refer the case to the Director of Public Prosecutions and recommend criminal charges.

Further, the Competition Act allows individuals and/or entities who have been harmed by violation of the Competition Act's criminal provisions to sue to recover damages.

Conclusions:

It is important that employers take the time to carefully review their practices and agreements with third parties to see if they may potentially run afoul of these new wage-fixing and no-poaching prohibitions. Because the prohibitions are not limited to agreements just between competitive employers, or only written agreements, this may require a detailed review of HR and employment practices across the board. For larger organizations, it may also be important to update members of HR or staff with hiring authorities about these new considerations, so no inadvertent breaches occur. Employers who have or intend to enter third party agreements which include no-poaching or wage-fixing aspects are encouraged to seek legal advice about whether any exceptions may apply.

If you have any questions about the employment law or other implications of the amendments to the Competition Act on your business, please reach out to a member of the Lee Workplace Law team. We'd be pleased to assist.