Canadian Guidance On Wage-Fixing And No-Poaching Agreements – Antitrust, EU Competition

Insights About the Amendment and Guidelines
Regarding Wage-Fixing and No-Poach Agreements

On June 23, 2023, the new criminal provision (section 45(1.1))
will come into force, making it a per se offence for
employers to enter into wage-fixing or no-poach agreements –
in other words, these agreements will be illegal regardless of
their effect on competition.⁴ The penalty for violating
this new provision includes imprisonment for up to fourteen years
or a fine to be set at the discretion of the court, or both.

The Bureau’s guidelines set out how it will interpret and
enforce this new provision. Here are ten insights about the
amendment and the Bureau’s guidance:

1. Affiliated Parties. The amendment does not
   apply to employers that are affiliated (i.e., ultimately controlled
   by the same entity). Thus, corporate groups can continue to
   coordinate their HR matters across all entities within their
   organization without risk.




2. Employers, Not Competitors. The civil
   price-fixing provision of the Act applies only to companies that
   are “competitors”. By contrast, the amendment applies to
   all employers that enter into agreements regarding wages, etc.,
   whether or not they compete. The actions of persons acting for
   them, including directors, officers, agents, and employees, may be
   attributed to the employer, or those individuals may be
   “employers” themselves (and therefore subject to the
   available sanctions).




3. Employment Relationship Required. The
   amendment applies to agreements in respect of persons in an
   employment relationship (which is defined by laws related to
   employment and “other circumstances under which the
   relationship was entered into”). It is unclear what
   “other circumstances” will be relevant, but it is
   questionable whether a court would enter a criminal conviction for
   any conduct in respect of persons whom employment law would not
   recognize as being in an employee-employer relationship.




4. Conscious Parallelism. While it is not a
   violation for a business to act independently with awareness of the
   likely response of other employers or in response to the conduct of
   other employers (“conscious parallelism”), the guidelines
   warn the Bureau may attempt to treat parallel conduct paired with
   other facilitating practices (e.g., exchanging information about
   each other’s employment practices) as a violation. The
   guidelines suggest that merely “taking steps to monitor”
   other employers’ practices could be a facilitating practice,
   but there is no modern history of Canadian courts accepting that
   mere monitoring of a rival constitutes an agreement.




5. Terms and Conditions of Employment. The
   guidelines warn that the prohibition on wage-fixing will extend to
   any “terms of employment” so long as it “could
   affect a person’s decision to enter into or remain in an
   employment contract.” This broad language could apply to a
   range of HR matters, including a company’s vacation policies or
   pandemic-return-to-work policies. While the Bureau will likely
   exercise discretion about which types of cases to investigate or
   enforce, private litigants could use this broad language to bring
   private actions in provincial Superior Courts or the Federal
   Court.




6. Reciprocity Not Required, Except When it Is.
   The guidelines counsel that, because of the specific language of
   the amendment, it is a crime for Company A to enter into an
   agreement with Company B about Company A’s wages (but not
   Company B’s). However, it is not a crime for Company A to agree
   not to poach Company B’s employees unless Company B also agrees
   not to poach Company A’s employees.




7. Dealing with Unions. The amendment applies to
   all employees, including unionized labour. However, the guidelines
   do not explain how the amendment interacts with other laws that
   govern unionized labour, including section 4(1)(c) of the
   Competition Act. That section expressly permits agreements between
   two or more employers in “a trade, industry or
   profession” that pertains “to collective bargaining with
   their employees in respect of salary or wages and terms or
   conditions of employment.”




8. Risk of Private Actions. The amendment creates
   a criminal offence. Under the Competition Act, private parties can
   bring private damages suits or seek other orders for such offences
   before provincial Superior Courts or the Federal Court, including
   class actions. Employers should understand how plaintiffs’
   lawyers, unions or other stakeholders might attempt to use the
   amendment in private actions.




9. Some Protection for M&A and Joint Ventures, But
   Questions Remain. The amendment is subject to the
   “ancillary restraints defence”, which shields restrictive
   agreements from criminal prosecution provided they are (i)
   ancillary to a broader and separate agreement that is not illegal,
   and (ii) directly related and reasonably necessary for that other
   agreement. The guidelines confirm the Bureau will not
   “generally” assess wage-fixing or no-poaching clauses
   that are ancillary to mergers or joint ventures under the criminal
   provision, or “second guess” the restrictions created by
   employers in these contexts. However, the guidelines do not provide
   counsel about when restrictions can be utilized in common types of
   M&A agreements where provisions related to employees are
   frequently found (e.g., NDAs, Exclusivity Agreements, Purchase
   Agreements, Transition Services Agreements). Careful planning with
   competition counsel will be required.




10. Non-Compete Agreements Not Impacted. The US
    Federal Trade Commission has recently proposed a rule that would
    ban non-compete provisions from employment contracts in the US. The
    amendment and the guidelines do not apply to non-compete provisions
    in employment contracts, and those agreements remain legal under
    Canadian competition law.