On June 23, 2023, the new criminal provision under the Competition Act (Act) prohibiting wage-fixing and no-poach agreements comes into force. This pending change in the law involves the potential for significant criminal and financial penalties. It is critical that employers stay informed and implement best practices to ensure compliance.
Below are key highlights of the new provision and what businesses should consider in advance of June 23, 2023.
What Is the New Provision?
The new criminal provision prohibits agreements between non-affiliated employers to:
Fix terms or conditions of employment, or
Not hire or solicit each other’s employees
The new provision applies irrespective of whether the employers are competitors.
The Competition Bureau (Bureau) has published draft guidance on how it interprets the new provision. While not binding on the Bureau or on the courts, key highlights of this guidance include:
The wage-fixing provision applies to any terms or conditions of employment such as terms that “could affect a person’s decision to enter or remain in an employment contract,” including job descriptions, working hours or work location.
The no-poach component prohibits reciprocal agreements between two or more employers not to hire or solicit each other’s employees. It does not, however, prohibit one-way agreements, where one employer agrees not to hire or solicit another’s employees. Multiple one-way agreements that result in two or more employers agreeing not to poach each others’ employees would be prohibited.
Why Is the Provision Coming Into Effect Now?
The prohibition against wage-fixing or no-poach agreements was introduced in the Canadian government’s April 2022 budget legislation and enacted on June 23, 2022. However, given the criminal nature of the new provision, there was a one-year delay to allow businesses to ensure that they are compliant once the law is in effect. Accordingly, the Bureau is likely to consider that businesses have had sufficient time to ensure compliance and may promptly begin enforcement once the provision comes into force.
Are There Any Defences to the New Provision?
The new provision will be subject to the existing ancillary restraints defence (ARD) that applies to the criminal conspiracy provisions of the Act. The ARD permits otherwise illegal agreements or arrangements that are directly related to, and reasonably necessary to give effect to, a broader or separate agreement that is not, itself, illegal.
To determine if the ARD applies, a fact-specific assessment must be undertaken in the context of each individual agreement. For example, the Bureau’s draft guidance indicates that wage-fixing or no-poach agreements entered into in the context of a bona fide merger, joint venture or strategic alliance are unlikely to be problematic, provided that their scope is not broader than necessary.
What Are the Potential Penalties for Breaching the New Provision?
Penalties for a breach of the Act’s criminal conspiracy provision, including the new criminal prohibition against wage-fixing or no-poach agreements, will also change. As of June 23, 2023, the maximum penalties will include imprisonment for up to 14 years (no change), a fine at the discretion of the court (increased from a maximum of C$25-million) or both. Breaches of the new provision may also expose employers to private actions for damages, including class actions.
What Should My Company Do to Be Compliant?
Existing Agreements: Review existing agreements that include wage-fixing or no-poach provisions to ensure that they comply with the law. Where necessary, consider revising these agreements to ensure that they are not offside the new provision. It is also important to implement protocols to ensure that conduct relating to wage-fixing or no-poach provisions in existing agreements complies with the new provision.
New Agreements: Update template agreements to ensure that they do not contain provisions that would offend the new prohibition against wage-fixing or no-poach agreements. Ensure that agreements entered into on or after June 23, 2023, with unaffiliated employers (which may include customers, suppliers or other third parties) are not offside the new provision. Where wage-fixing or no-poach provisions are a necessary element of a broader agreement, ensure that they are drafted as narrowly as possible.
Information Sharing: Ensure that sensitive employment information is not shared with other employers other than for bona fide business reasons (e.g., due diligence or integration planning in the merger context). The sharing of sensitive employment information or monitoring each other’s employment practices, when combined with parallel conduct, may support an inference of an illegal wage-fixing or no-poach agreement.
Compliance: Update training and compliance programs to reflect the new legal realities and provide training to relevant business personnel on the new provision.