Last year, the Competition Act was amended to make it a criminal offense for two or more unrelated employers to enter into wage-fixing or no-poaching agreements. As we discussed last summer, these new provisions come into force on June 23, 2023, with the aim of allowing employers adequate time to assess and adjust their practices to avoid potential criminal repercussions under these new regulations.
In preparation for these amendments, the Competition Bureau has now released draft guidance, and is inviting public feedback until March 3, 2023. Guidance documents from the Bureau are often as critical as the legislation itself, as they outline the Bureau's approach to the implementation and enforcement of the Competition Act, and inform businesses as to how they can comply with Canada's competition regulations.
As we discuss below, while the draft guidelines offer some clarity, they still grant a considerable degree of discretion to the Bureau and don't fully address every scenario. Importantly, the draft guidelines do confirm that the Bureau will only enforce these provisions for (a) new agreements entered into by employers on or after June 23, 2023, or (b) where conduct reaffirms or implements older agreements that are in violation.
Brief History
The Competition Act was amended in 2009 to intentionally exclude buy-side agreements, including wage-fixing and no-poaching agreements, from its criminal provisions, and to treat them as civilly reviewable practices. In recent years, there has been a push to recriminalize these agreements, despite their potential efficiency benefits. This started in 2016 with the U.S. antitrust agencies announcing wage-fixing and no-poach conspiracies as criminal violations and gained momentum during the pandemic when the Standing Committee on Industry, Science and Technology considered wage-fixing in the Canadian grocery sector.
Ultimately, the Competition Act was significantly amended through the Budget Implementation Act, 2022 including the re-criminalization of wage-fixing and no-poaching/non-solicitation agreements. The penalty 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 damage lawsuits, including class action lawsuits, from private parties who claim to have suffered damages.
Prohibited Agreements
The draft guidelines have provided clarity regarding the scope of wage-fixing and no-poaching agreements that will fall into the scope of the new provisions:
- Wage-Fixing Agreements: In addition to prohibiting agreements between unaffiliated employers to fix salaries or wages, agreements to fix, maintain, decrease or control terms and conditions of employment are also prohibited. "Terms and conditions” include the responsibilities, benefits and policies associated with a job. 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.
The draft guidelines state that the Bureau's enforcement will generally be limited to those terms and conditions that could impact a person's decision to enter into or continue an employment contract. Nonetheless, employers should be cautious when entering agreements with unaffiliated employers that attempt to control any aspect of employment.
- No-poaching Agreements: The new provisions will make it an offence for unaffiliated employers to agree to refrain from soliciting or hiring of each other's employees. Examples provided by the draft guidelines include:
- agreements restricting the information provided about job openings; and
- agreements implementing hiring mechanisms designed to prevent employees from being poached or hired by another party to the agreement.
This 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 or reciprocal arrangements that result in two or more employers agreeing to not poach each other’s employees, the Bureau may take action.
Employers Do Not Need to Compete
Significantly, unlike the criminal cartel offence, these new criminal provisions apply to agreements between two or more unaffiliated employers, regardless of whether they are competitors. The draft guidelines clarify that the term "employers" encompasses directors, officers, and agents or employees, such as human resource professionals. As a result, individuals involved in entering into these agreements may be subject to prosecution in addition to the employer.
Ancillary Restraints Defence and M&A Agreements
The new provisions will be subject to the ancillary restraints defence, which saves an agreement (or term of an agreement) that would otherwise contravene these provisions. In order to establish this defence, the parties would need to establish that: (1) the restraint was ancillary to a broader or separate agreement that includes the same parties; and (2) the restraint was directly related to, and reasonably necessary to achieve the objective of the broader or separate agreement.
The application of this defence will undoubtedly play a crucial role in the future. For example, the draft guidelines state explicitly that the Bureau will not generally assess wage-fixing or non-solicitation clauses that are ancillary to M&A transaction under the new criminal provisions. However, the draft guidelines currently lack sufficient detail, so parties who want to include non-solicitation clauses in M&A agreements must plan carefully to avoid violating the new criminal provisions.
Franchisor/Franchisee Agreements
The new provisions do not provide an exemption for franchisor/franchisee relationships, and franchisor/franchisees will need to exercise significant caution when including non-solicitation terms in agreements. The draft guidelines do suggest that the application of the ancillary restraints defence would differ between a franchisor-franchisee agreement and a franchisee-franchisee agreement. The defence is less likely to be applicable in the latter case. In the former, it would be case-specific and depend on the employer's ability to prove the necessity of including the non-solicitation clause within the larger franchise agreement.
Information Sharing
The draft guidelines confirm that the Bureau does not view mere conscious parallelism as a violation of the new provisions. However, they caution that parallel conduct along with facilitating practices, such as sharing sensitive employment information or monitoring each other's employment practices, could suggest an agreement has been made. Accordingly, employers should be cautious when sharing information, especially during collaborative activities like benchmarking employment terms.
Takeaways
While the draft guidelines do provide some clarity, they leave much discretion to the Bureau and they do not cover all scenarios. It therefore remains to be seen how these agreements will be treated in the course of certain business transactions that were not contemplated in the draft guidelines (e.g., joint venture agreements, collaboration agreements and exclusivity agreements). If there are common practices in your industry that may be in violation of these new rules, you should consider making a submission to the Bureau as part of the comment solicitation process to encourage the Bureau to come to a favourable outcome as it relates to that common practice. You may wish to consult with counsel before doing so.
As the penalties are serious, employers should be sure to review any agreements with other unaffiliated employers and update policies and training manuals to ensure compliance. For now, agreements entered into before June 23, 2023, will not be subject to this new provision. However, according to the draft guidelines, conduct that reaffirms or implements older agreements (including renewal of those agreements with the offending provisions still in place) will be a violation after June 23, 2023.
