On June 23, 2022, Bill C-19, also known as the Budget Implementation Act, 2022, No.1 (“BIA”), received royal assent. As discussed in more detail in our previous blog post, the BIA included significant amendments to the Competition Act (the “Act”), including the addition of new criminal cartel provisions prohibiting so-called wage-fixing and no-poaching agreements, which will become effective as of June 23, 2023. More specifically, these provisions will prohibit agreements between unaffiliated employers to either “fix, maintain, decrease or control salaries, wages or terms and conditions of employment” or “not solicit or hire employees”.
In advance of these new provisions coming into force, the Competition Bureau (the “Bureau”) has released draft guidelines that describe its approach to the interpretation and application of these provisions (the “Guidelines”). Interested parties have been invited to provide comments on the Guidelines by no later than March 3, 2023. Once finalized, the Guidelines will supplement the Bureau’s current Competitor Collaboration Guidelines. This blog post discusses the important components of the Guideline in practical terms and provides key takeaways and compliance tips for businesses moving forward. The need for businesses to comply with these provisions cannot be overstated, as employers that breach them could face significant penalties, including fines in the discretion of the court and/or imprisonment for a term of up to 14 years. They will also be subject to damages claims (primarily in the form of class actions) from those who allegedly suffered damage as a result an alleged illegal agreement.
I. General Principles The Guidelines set out several principles of general application and, in doing so, answer a number of preliminary questions that arose when the new provisions were first announced:
- Will the Provisions Apply to Existing Agreements?: The Guidelines indicated that the new provisions will apply to new agreements entered into by unaffiliated employers on or after June 23, 2023, as well as to conduct that reaffirms or implements older agreements. In other words, conduct by unaffiliated employers reaffirming or implementing an agreement entered into before June 23, 2023 will be captured by the new provisions.
- Naked Restraints versus Legitimate Collaborations?: The Guidelines indicated that the new provisions are directed at “naked restraints” on competition, namely restraints on wages or job mobility that are not implemented in furtherance of a legitimate collaboration, strategic alliance or joint venture. Restraints implemented in furtherance of a legitimate collaboration, strategic alliance or joint venture may be reviewed by the Bureau under the civil competitor collaboration provisions, which apply only to existing or proposed agreements that are likely to result in a substantial prevention or lessening of competition. This approach echoes the Bureau’s traditional two-step approach when deciding whether to review an agreement between competitors under the criminal cartel provisions (s. 45) or the civil competitor collaboration provisions (s. 90.1).
- Are Employers Limited to Businesses?: The new provisions will apply to agreements between unaffiliated employers, regardless of whether they compete in the supply of a product or service. In this regard, as indicated in the Guidelines, “employers” include not only businesses, but also directors, officers, agents and employees, such as human resource professionals. Accordingly and by way of example, the Bureau views agreements between an officer of one company and a director of another company as captured. In that case, each of the individuals and companies could, according to the Bureau, be potentially subject to prosecution under the new provisions.
- Does an Employment Relationship Exist?: According to the Guidelines, the question of whether an employer-employee relationship exists between parties will depend on the laws and circumstances under which the employment relationship was entered into.
- What about Information Sharing?: According to the Guidelines, the Bureau does not consider conscious parallelism (when a business acts independently with awareness of the likely response of its competitors or in response to the conduct of its competitors) as a violation of the new provisions. However, the Bureau does view parallel conduct coupled with facilitating practices, such as sharing sensitive employment information or taking steps to monitor each other’s employment practices, as potentially sufficient to prove that an agreement was concluded.
II. Types of Prohibited Agreements The Guidelines provide further particulars regarding the types of prohibited agreements:
a. Wage-fixing Agreements
As noted above, the new provisions prohibit agreements between unaffiliated employers “to fix, maintain, decrease or control salaries, wages or terms and conditions of employment”. As such, the Guidelines indicate that the following types of agreements would come within the scope of these provisions:
- agreements to fix, maintain, decrease or control salaries;
- agreements to fix, maintain, decrease or control wages; and
- agreements to fix, maintain, decrease or control terms and conditions of employment.
Significantly, the Guidelines note that “terms and conditions” include the responsibilities, benefits and policies associated with a job, including, for example, job descriptions, allowances (such as per diem and mileage reimbursements), non-monetary compensation, working hours, location and non-compete clauses, and other directives that may restrict an individual’s job opportunities. That being said, the Guidelines make clear that the Bureau’s enforcement generally is limited to those “terms and conditions” that could affect a person’s decision to enter into or remain in an employment contract.
b. No-poaching Agreements
As noted above, the new provisions prohibit agreements between unaffiliated employers “to not solicit or hire each other’s employees”. According to the Guidelines, this language captures all types of agreement between unaffiliated employers that limit opportunities for their employees to be hired by each other. This would include, among other things, agreements restricting the communication of information related to job openings and agreements adopting hiring mechanisms, such as point systems, designed to prevent employees from being poached or hired by another party to the agreement.
Importantly, consistent with the language in the new provisions, the Guidelines make it clear that no-poach offence will only apply where unaffiliated employers agree to not solicit or hire “each other’s” employees. Issues will not arise in situations where only one employer agrees not to poach another employer’s employees – something is definitely relevant in the context of purchase and sale transactions.
III. Ancillary Restraints Defence As with the existing cartel provisions, the new provisions include an ancillary restraints defence (“ARD”). In this regard, the Guidelines indicate that the ARD will be available when:
- the restraint is ancillary to, or flows from, a broader or separate agreement that includes the same parties;
- the restraint is directly related to and reasonably necessary for achieving the objective of the broader or separate agreement; and
- the broader or separate agreement, when considered without the restraint, does not violate the new provisions.
While the Guidelines are light on examples of when the ARD will be available, they do acknowledge the significance that non-solicitation clauses can play in many agreements to purchase a business. In this regard, the Guidelines note that the Bureau 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. Rather, such clauses will typically be assessed under the civil competitor collaboration provisions. An exception would be where those clauses are clearly broader than necessary in terms of covered employees, territories or duration, or where the merger, joint venture or strategic alliance is a sham.
IV. Competition Bureau Enforcement Examples
The guideline provides four examples illustrating the Bureau’s enforcement approach to the new provisions. The examples focus on wage-fixing agreements, no-poaching agreements and employee secondments, no-poaching agreements and recruitment agencies and no-poaching and franchise agreements. These examples are reproduced in the appendix to this blog post.
V. Key Take-Aways and Compliance Tips
The Guidelines suggest that the Bureau will vigorously enforce the new provisions in Act, while also signalling an intent to focus on naked restraints on competition. The following are a few key takeaways and compliance tips for businesses moving forward:
- Transaction Agreements: The Bureau helpfully clarifies 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. However, non-solicit clauses or other employee-related provisions in transaction agreements should have regard to the new wage-fixing/no-poaching prohibition. In particular, provisions that go beyond what may be typical in duration and scope should be considered closely to ensure they are reasonably necessary to achieve the objective of the broader transaction agreement. As a practical matter, the Guidelines do not provide detailed guidance on when and how restrictions can be used in common types of transaction related agreements where employee related provisions are commonly found, such as purchase agreements, non-disclosure agreements and exclusivity agreements. As a result, careful planning will be required to mitigate enforcement risk.
- Ancillary Restraints Defence: The Guidelines make clear that the Bureau will critically assess any reliance on the ARD having regard to a number of factors and the relevant circumstances, including, for example, the terms of the agreement, the form of the agreement, the functional relationship or lack thereof between the restraint and the principal agreement, and how the restraint makes the principal agreement more effective in accomplishing its purpose. As a result, to the extent one or more parties intend to rely on the ARD, care should be taken.
- Franchisor and Franchisees: The Guidelines draw a distinction between agreements between franchisees, and agreements between the franchisor and each of its franchisees. According to the Guidelines, the ARD is less likely to apply to the former whereas its application to the latter is more probable. However, the Guidelines caution that the application of the ARD to the latter will be case-specific and will depend on whether the parties can prove that any no-poaching clauses are necessary and flow from the broader franchise agreement.
- Review your HR Practices: Employers should ensure that they are not involved in practices with other unaffiliated employers (whether or not those employers are competing businesses) that may be considered (i) wage-fixing or no-poach agreements/arrangements, or (ii) improper information sharing or other practices that could be perceived as facilitating such agreements/arrangements. Competition/antitrust compliance measures that seek to mitigate the risk of non-compliance with the conspiracy provisions should be expanded to HR professionals.
As noted above, employers that violate these provisions will face significant penalties and possibly class action lawsuits. Compliance with these new provisions is a must.